Audit Target: The Sole Proprietor

Posted on 07/08/2013 by Sandy Suchoff

 IRS-enforces-tax-audit-copy-e1325934762145

A sole proprietor is someone who owns an unincorporated business by himself or her self. Each year the IRS publishes their activities in a publication called the Data Book. And each year for the past number of years the number one target of audits are those tax returns with a Schedule C for small business activity. So how to prepare yourself for a possible audit? Here are some tips.

  • Keep records separate. The quickest way to get a deduction for your business disallowed is to blend your personal bills with those from your business. Open a separate checking account and use a separate credit card for business expenses.
  • Keep logs. Keep a logbook for business miles. Keep receipts for business meetings and meals. Include the date, time, subject, and who was present at the meeting.
  • Ordinary and necessary. Two key words to use to qualify legitimate, deductible business expenses per the IRS are;
    • Ordinary: an expense that is common and accepted in your industry.
    • Necessary: an expense that is helpful and appropriate for your business.
  • Business not hobby. A qualified business activity allows for direct deductibility of appropriate expenses, where-as hobby activity expenses are only allowed as a miscellaneous itemized deduction subject to passing a 2% adjusted gross income threshold. There are many facets here, but key among them is a profit motive and active participation in the activity to qualify your activity as a business.

Just because the IRS focuses their audit activities in this area does not mean you should be reluctant to take appropriate deductions. Just be prepared to defend your position with excellent records.

Our practice has years of experience defending taxpayers in their audits. Each case is handled individually, and analytically reviewed and prepared for by an experienced CPA. Our expertise is a result of or years of experience defending our clients against the IRS. Should you find yourself faced with an IRS audit please contact us.

For help with the IRS, tax problems, back tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807 or email us at info@irstaxproblems.com.

 

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The Chances of Being Audited

Posted on 07/01/2013 by Sandy Suchoff

 tax audit ahead

An IRS Tax Audit can be one of the scariest situations a person or business can face. Often times the IRS has a distinct advantage because the average person doesn’t know enough tax law to defend him/herself against an audit. Every year the IRS publishes the statistics of who they are examining. :

Audit Rate Statistics for INDIVIDUALS

Fiscal Year Year

2012

2011

2010

2008

All Individual Tax Returns

1.03%

1.11%

1.11%

1.00 %

No Income (AGI)

2.67%

3.42%

3.19%

2.15%

Income under $25,000

1.05%

1.22%

1.18%

.90%

$25,000 – 50,000

.70%

.73%

.73%

.72%

$50,000 – 75,000

.64%

.83%

.78%

.69%

$75,000 – 100,000

.64%

.82%

.64%

.69%

$100,000 – 200,000

.85%

1.00%

.71%

.98%

$200,000 – 500,000

1.96%

2.66%

1.92%

1.92%

$500,000 – $1 million

3.57%

5.38%

3.37%

2.98%

$1 million – $5 million

8.90%

11.80%

6.67%

4.02%

$5 million – 10 million

17.94%

20.75%

11.55%

6.47%

$10 million and over

27.37%

29.93%

18.38%

9.77%
Note: These audit rates are stated as a percent of total tax returns with “total positive income” (TPI) as claimed on individual tax returns. In general the examinations are for tax returns filed in the previous calendar year.Source: IRS Data Books

Observations:

After dramatic audit increases in incomes over $200,000 during 2011, the audit rates have come down slightly, but still at least 2x the rates in 2008.

Those with incomes over $10 million will have a 1 in 4 chance of being audited.

Automatic spending cuts from sequestration could impact the audit rates in 2013. How far they will drop is anyone’s guess.

It is also unknown what the 2013 tax increases for those with incomes over $250,000 will do to audit rates as more of the total revenue collected will come from these upper income groups.

 Our practice has years of experience defending taxpayers in their audits. Each case is handled individually, and analytically reviewed and prepared for by an experienced CPA. Our expertise is a result of or years of experience defending our clients against the IRS.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

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Audit Target: The Sole Proprietor

Posted on 06/24/2013 by Sandy Suchoff

Tax Audit 3

Each year the IRS publishes their activities in a publication called the Data Book. And each year for the past number of years the number one target of audits are those tax returns with a Schedule C for small business activity. So how to prepare yourself for a possible audit? Here are some tips.

  • Keep records separate. The quickest way to get a deduction for your business disallowed is to blend your personal bills with those from your business. Open a separate checking account and use a separate credit card for business expenses.
  • Keep logs. Keep a logbook for business miles. Keep receipts for business meetings and meals. Include the date, time, subject, and who was present at the meeting.
  • Ordinary and necessary. Two key words to use to qualify legitimate, deductible business expenses per the IRS are;
    • Ordinary: an expense that is common and accepted in your industry.
    • Necessary: an expense that is helpful and appropriate for your business.
  • Business not hobby. A qualified business activity allows for direct deductibility of appropriate expenses, where-as hobby activity expenses are only allowed as a miscellaneous itemized deduction subject to passing a 2% adjusted gross income threshold. There are many facets here, but key among them is a profit motive and active participation in the activity to qualify your activity as a business.

Just because the IRS focuses their audit activities in this area does not mean you should be reluctant to take appropriate deductions. Just be prepared to defend your position with excellent records.

Should you find yourself faced with an IRS audit, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

 

 

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Tips for an IRS Audit

Posted on 06/17/2013 by Sandy Suchoff

 audit7

While most of us are never audited, when it happens it can feel a lot like a lamb thrown in the room with a lion. The IRS auditor does these audits every day. They know what to look for and can ask leading questions that you may easily answer incorrectly. So what are some good tips when you are in the cross-hairs of an IRS audit?

  • Address correspondence issues with the IRS timely. Do not let the problem get to a point that a face-to-face examination is required.
  • Ask for help. Do this right away. Too many clients think the problem is easy to resolve, but inadvertently say the wrong thing or open another audit issue inadvertently.  Call a professional CPA firm like Lefstein-Suchoff CPA & Associates, LLC.
  • Understand what is being asked. Clearly understanding the core question can simplify the solution. Why is the IRS asking to see your 1099’s? Do they have a form that you do not? Why are they asking about your small business profits? Are they thinking your business is a hobby?
  • See the Audit the way the way the IRS auditor is trained to see it. The IRS has certain areas in which they focus training for their auditors.  Common categories targeted, for which the IRS has technical guides for:

* Architects

* Art Galleries

* Attorneys

* Business Consultants

* Capitalization versus Repairs

* Cash Based Business

* Child Care Provider

* Construction

* Research Credits

* Farmers

* Hobbies (activity not engaged for profit)

* Lawsuit Awards/Settlement

* Ministers

* Partnerships

* Retail

* Veterinary Medicine

* Winery/Vineyards

We are experienced in representing taxpayers in IRS audits.  If you are unsure, please call us for a free consultation at 201-947-8081 or 646-688-2807.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

 

 

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Failure to File or Pay Penalties: Additional Four Facts

Posted on 06/10/2013 by Sandy Suchoff

 Income Tax Penalty

  The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns. When it comes to filing your tax return, however, the law provides that the IRS can assess a penalty if you fail to file, fail to pay or late.

In our last blog, we looked at four points and today we will point out four additional facts on the two different penalties you may face if you file or pay late.

  1. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  2. If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
  3. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
  4. At Lefstein-Suchoff CPA & Associates, LLC helps people abate penalties for themselves and their businesses if they meet the reasonable cause criteria.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

 

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Failure to File or Pay Penalties: The First Four Facts

Posted on 06/03/2013 by Sandy Suchoff

penalty

The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns. When it comes to filing your tax return, however, the law provides that the IRS can assess a penalty if you fail to file, fail to pay or We will look at four points today, and look out for our next blog, with another four points on the two different penalties you may face if you file or pay late.

  1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.
  2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you.
  3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
  4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Tune in to our next blog with four additional facts regarding failing to file penalties and failure to pay penalties.

At Lefstein-Suchoff CPA & Associates, LLC, we help those with IRS problems to avoid costly mistakes such as IRS penalties, as well as to abate those that have already been assessed.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

 

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Avoid Future Tax Problems: Start Planning Next Year’s Tax Return Now

Posted on 05/16/2013 by Sandy Suchoff

 

No_IRS_Problems

For most taxpayers, the tax deadline has passed. But planning for next year can start now. Being organized and planning ahead can save time and money in 2014.

Here are six things you can do now to make next April 15 easier:

  1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
  2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.
  3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.
  4. Shop for a tax professional.  If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you’re not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely.  At Lefstein-Suchoff CPA & Associates, LLC, we take the proactive approach to meet each client’s unique, personal, and business tax goals and needs. Our goal is to save you more money in taxes than our overall fees. Execution is not merely about meeting deadlines.  It is implementing those calculated and deliberate plans with expertise and skill within the bounds of taxation laws and current accepted business practices.  We are assertive tax planners.
  5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.
  6. Keep up with changes.  Find out about tax law changes, helpful tips and IRS announcements all year.  At Lefstein-Suchoff CPA & Associates, we make it our prerogative to remain up to date on changing tax laws and IRS codes.  We use this knowledge in providing exemplary service for our clients.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

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Are you Using the Correct Filing Status When Filing Your Income Tax Return?

Posted on 05/10/2013 by Sandy Suchoff

filing status

It’s important to use the correct filing status when filing your income tax return. It can impact the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return.

Are you single, married or the head of your household? There are five filing statuses on a federal tax return. The most common are “Single,” “Married Filing Jointly” and “Head of Household.” The Head of Household status may be the one most often claimed in error.

The IRS offers these seven facts to help you choose the best filing status for you.

1. Marital Status.  Your marital status on the last day of the year is your marital status for the entire year.

2. If You Have a Choice.  If more than one filing status fits you, choose the one that allows you to pay the lowest taxes.

3. Single Filing Status.  Single filing status generally applies if you are not married, divorced or legally separated according to state law.

4. Married Filing Jointly.  A married couple may file a return together using the Married Filing Jointly status. If your spouse died during 2012, you usually may still file a joint return for that year.

5. Married Filing Separately.  If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately.

6. Head of Household.  The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

7. Qualifying Widow(er) with Dependent Child.  This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

 

 

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Audit Rates for S Corporations and Partnership Returns

Posted on 05/06/2013 by Sandy Suchoff

tax audit small business

Having a small business is itself a flag of sorts. Some people use small businesses as a tax dodge, a way to write off expenses, and so the IRS keeps a close eye on small-business owners.

Other factors that may contribute to being selected for an audit are:

  • Being self-employed — Filing a Schedule C isn’t a guarantee that you’ll be audited. But the IRS doesn’t like to see “a small Schedule C that you continue to show losses on while you have a regular job”.
  • Home offices — There have been several articles on major sites recently touting the tax advantages of a home office, but you’ve got to be careful. This is a huge red flag.
  • Family members on the payroll — One common tax dodge is to “hire” a family member in order to take more money out of a business. There’s nothing wrong with employing family members as long as they’re actually working.
  • Unlikely business deductions — It can be tempting for small-business owners to claim new “toys” as business deductions. That Nintendo Wii? Not a business expense unless you’re reviewing games with the intention to make a profit. That trip to New York? Not a business expense unless it serves a legitimate purpose.
  • Excessive entertainment deductions — The IRS is on the lookout for companies that take excessive deductions, or that try to bundle together personal and business expenses.

Audit flags do not necessarily lead to actual audits. They don’t even mean there’s something wrong with the return. They simply indicate that a tax return is more likely to be checked by an actual human being, and therefore more likely to get audited than another return. (And remember: the IRS always selects a certain number of people to audit completely at random.)

Below is a table that shows the audit rates of S Corporations and Partnerships for the years of 1997, 2008, 2010 and 2011.

table 719At Lefstein-Suchoff CPA and Associates we have years of experience representing individuals and business in an IRS tax Audit. Our experienced negotiators will skillfully assist you in your tax audit and you do not even have to be present.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

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What can Trigger a Tax Audit?

Posted on 05/01/2013 by Sandy Suchoff

audit3

A lot of people are curious to know who the IRS audits.  Audit activities are likely to increase as the IRS continues to utilize enforcement to provide revenue.  At Lefstein-Suchoff CPA and Associates we have years of experience defending taxpayers in their audits.

For your information, we have put together a list of some of the most common ways to bring your personal return to the attention of the Internal Revenue Service, there for increasing your risk for an audit.

  • Incomplete or messy returns — Math errors and missing information raise a red flag, as you’d expect. If the IRS’s computer can’t make sense of what you’ve filed, a human has to check to find the mistake. This is one reason to file electronically: computers help to catch silly errors.
  • Unreported income — This is a given. If you file a return but fail to report income received, you’re heading for trouble. All of your interest, dividends, and miscellaneous income needs to be reported. It is important to remember that everyone who sends you a 1099 is also sending one to the IRS.
  • Suspiciously low income — If you’re making much less than others in the same field, it may lead to taking a further look at your return.
  • Having a high income — Though fewer than one-percent of taxpayers are audited each year, those making over $100,000 are five times more likely to come under scrutiny.
  • Major changes in income — Unexplained fluctuations in income can indicate that something was under-reported somewhere. Most people don’t have income that swings wildly up-and-down, and the IRS knows it.
  • Perfectly round numbers — It’s unlikely that your investment returns were exactly $1000, or that your mortgage interest deduction was $15,000. Too many round numbers on a return are a symptom that something suspicious may be going on.
  • Too many charitable contributions — Charity is good, but too much charity can draw attention to your return. If the average person in your income bracket donates about $1000 to charity and you claim you donated $5000, you’re going to increase the odds of an audit. Make sure you save your receipts!
  • Participating in tax scams — The IRS is trained to deal with common evasion attempts.
  • High itemized deductions — Anything too far from the averages is likely to bring your return more attention. There’s nothing wrong with claiming all of the deductions to which you are entitled, but be aware that if you have a lot of itemizations, you’re more likely to be audited.
  • Discrepancy between State and Federal returns — This is another example of how sloppiness can hurt you. It sounds simple, but be sure that your information matches on both your state and Federal returns.

At our firm, Lefstein-Suchoff CPA and Associates, each audit case is handled individually, and analytically reviewed and prepared for by an experienced CPA. Our expertise is a result of our years of experience defending our clients against the IRS.

For help with IRS, tax audits, tax problems, back taxes, tax settlements, tax debt, Offer in Compromise, tax help, IRS debt, a tax lien, a state tax levy, an IRS levy, an IRS tax lien, contact us.  If you need IRS help and have unresolved cases with previous tax lawyers and tax attorneys, we can help find an optimal resolution for your indigenous needs.  Contact us at 201-947-8081 or 646-688-2807, or email us at info@irstaxproblems.com.

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