Seeing as the IRS has not received any large increases in budget or staffing, it should not be surprising that the number of audits on individual tax returns continues to decrease. This is a phenomenon that I know I mention from time to time, but seeing as audits will forever be a fear of the taxpayer, it must continue to be addressed.
This is then when I continue to state that the small amount of audits actually carried out by the IRS does not mean that it is worth trying to get away with something on your tax return. Think of this way – if you are facing an audit, do you want to go into it knowing that you legally used the system to your advantage or that there is no way it is going to end without you handing over more money (or worse)?
This recent article from Accounting Today gives a quick look at how the Tax Cuts and Jobs Act could be affecting the audit landscape, while also acknowledging it may take a few years before those ramifications are fully understood. It presents an interesting theory that the TCJA may have removed a lot of complexity that could trigger an audit for the average taxpayer and shift the percentage of audits to the wealthy (even though their total number of audits is also on the decline).
One could say this is a good thing because it made the tax system easier for many average taxpayers, which is certainly true in some cases. The system did not suddenly become simple, though, especially in the current financial landscape where more and more people are earning income outside of a regular, full-time job. Having someone who can guide you to make sure you are using the system to your greatest advantage while making sure your tax obligation is satisfied should still remain the best tactic for making sure you do not have to face an audit.
Consider it doing your part to keep those audit numbers down by doing what you’re supposed to do.
Fewer audits is certainly not a way that the IRS is trying to be nicer toward taxpayers, but it is an inadvertent advantage. The agency is doing other things, however, in an attempt to be more taxpayer-friendly.
In the wake of the draft of a widely revamped W4 form, the IRS has also drafted a new tax return for seniors and a draft for a new 1040 form. I don’t know how large an effect these will have as the amount of taxpayers who fill out these paper forms without electronic assistance is ever decreasing, but the aims are good. Again, simplifying things doesn’t necessarily make them simple.
Also, the IRS recently sent out communication that points people toward their Interactive Tax Assistant, which offers answers to many tax questions. Keep in mind, though, that the best tax answers come from those who know your personal situation, so never be afraid to turn to us when you can’t find answers elsewhere.
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Welcome back to the work week after a Thursday holiday that gave many people a four-day weekend. It felt good, didn’t it? Wouldn’t it be great to feel that way all the time?
That type of feeling is something I hear about occasionally from small business owners when it comes to why they started their business. That type of feeling is something I hear about constantly, though, from those who are looking to start a new business. A little more freedom and a lot more time off is part of the dream goal.
The fact that that falls off as a consideration among those who are already in the weeds is a telling thing. This decrease is not because those already in their business are so thrilled about what they do that they no longer want time off. Instead, it is because going into business for yourself is tough.
I do not want this to feel dire. Instead, I want this to be a call that you don’t have to do it all alone. Chances are you did not go to school for law. Chances are you never studied accounting. Chances are you find data entry tedious and maddening. Chances are you do not have a nuanced understanding of marketing. Okay, maybe you’re lucky and have some experience in one of these areas. So many small business owners, however, end up doing all these things and more. More … you know, like the thing you really wanted to do and make a business out of in the first place.
If you do all these things, you are putting yourself in a time crunch that will feel unmanageable, and possibly really is unmanageable for there are only so many hours in a day. Enlisting help, however, can feel impossible because most new businesses are also in a financial crunch. But if you don’t get help how are you ever going to get that extra time for yourself?
And sure, maybe you do not have enough funds to bring on an employee, but you probably have enough funds to put out a couple hundred dollars a month and get an outside company to help you in one of those areas. That then will give you more time you can put into other areas of the business, make more money, and then siphon off another of those areas to someone else. Eventually you may then be able to afford an employee who can take some of the load from multiple areas, and just imagine the time savings there.
The vision many have when they start their own business is singular – I am doing to do this. But let me say that the small businesses I work with that are the most successful are the ones who have more tasks being assigned to others. And it is very rewarding to be part of those “others” that is helping them succeed.
So hold onto how good that time off felt and don’t be afraid to make moves to help you get there. And know that we are there to help you out however we can along the way.
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I am writing this in the midst of July 4th week, which means not as many people are going to read this one. But it also means that many of you are looking for something to do that will make it appear as if you’re doing work while sitting at your desk. So for those people, here are three quick hits so that you don’t have to pay too much attention.
In a story that seems to be constant rather than breaking news, the IRS is looking to hire more employees. The steady decrease in the agency’s workforce has been a story for years, leading to fewer audits and longer waiting times when contacting them.
It’s a problem I can’t quite wrap my mind around if I think about it too deeply. This is clearly an institution that the government needs to ensure it is funded and able to function. It seems to be an afterthought when it comes to budgeting, though, with a constant need for increased staff.
So what my mind always comes back to is don’t expect any changes to come about in how the agency runs until the story is that the government is making a significant effort to actually move it up the priority list.
Also this week came news that there has been some outreach from the financial community to the IRS stating that the new W-4 form is overly complicated and does not represent an upgrade for workers. Also add this to the things that I cannot quite wrap my mind around.
Is it more complicated, yes, but why does this have to be a bad thing? I mean this is the agency actually reacting to an issue and doing something that directly addresses the issue.
The draft version of the form we have seen certainly will take longer to fill out than the current one. Those who have complicated tax situations may even have to confer with a tax professional to get full answers. But does anyone ever say that tax planning is a bad idea? There is just going to be more information and more ability for more people to allow their withholding to satisfy their tax obligation.
Work is not something one should shy away from when it leads to better outcomes.
Finally, the IRS put out some information this week for those who make money through a hobby. The line between a hobby and a small business can be tricky. No matter on what side of that line you fall, though, if you are making money, the IRS wants to know about it.
That information can be found here.
This is one of those areas where things can be really gray. Like do you really need to report if you made something for a friend who paid you $20 for it? I’ll simply offer a shrug here as a noncommittal answer, but if you’re doing something that could become a significant sideline business, these are issues you at least want to think about.
But not until after burgers and fireworks. So enjoy your holiday!
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After a couple of weeks writing about potential scams that surround the tax world, it is time to look at something different. I am going to go in the complete opposite direction and talk about if you receive actual communication from the IRS.
First off, this feels scary. The minute you receive a piece of mail from the IRS just the agency’s logo sends your brain spinning into awful places envisioning a problem you cannot afford to handle. Do not let this fear take over, though. No matter what is inside the envelope, you will not improve the situation by ignoring it.
So next, assess what the matter really is. It is possible that it is minor and can be taken care of with minimal pain.
Realistically, however, this is probably something that is going to take more work than that. If we prepared your tax return, contact us. We will help guide you through the process. And it is a process that is going to be time-sensitive, so don’t hold off. The more time we have to handle things, the better we can do so.
This is especially key if the issue leads to an audit. In that situation, we can offer the assistance to back up why your tax return looks the way it does. This is where so much of the advice we give in this space during the tax season comes into play – the more paperwork you have properly recorded and filed, the easier it is to give the answers that will be needed.
If you did your own tax return and received that notice, that can be even more disconcerting, for you will immediately question if you did things right. Reaching out for professional help could be even more crucial at that point to try to mitigate any potential damage.
No matter what the situation, though, remember to not be ruled by fear, assess the situation, and get help if needed. Handling problems head-on is always the best choice of action in the long run.
This also seems like a good time to talk to those who have not filed their 2018 taxes yet. The IRS may not have contacted you about this yet, but they are going to if you do not stay on top of this. And again, avoiding it will not help.
Remember, too, that if you owe taxes, you are not getting away with not paying them even if you have filed an extension. That amount owed was still due back in April and is building interest and penalties. It is even possible that you have not filed yet because you know you are going to owe money and you don’t think you can afford the bill. That bill is only to grow as you ignore it, though. Leniency is not gained by hiding and you may be able to start working out a process that will ease the burden if you handle it now.
So yes, even those who are on extension, I know you have a few months left to go, but it can be to your advantage to get to work now.
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When I wrote about tax scams last week, I really didn’t plan on sticking to the same subject this week. Since then, though, I read this article from Accounting Today, and I thought it was necessary to go a little further. And this week, my overarching tip comes in two words:
I tend to talk about the larger tax scams, which can themselves be smart, allowing us to empathize with their victims. Most of them play on fear, an emotion we all experience. They also involve ignorance of the tax audit and collection process. Heck, even as a professional in this area, there are always new things that I learn about it, so it cannot be expected that laypeople will know all the rules.
There are also some smaller-scale schemes out there, though. I realize I may not have given them enough time and in them is where that two-word advice should be used. As an example from the article, a tax refund was delivered in cash to a client in a parking lot. If what you’re doing looks (and probably feels) illegal, chances are really good that it is. This is aside from the fact that the exchange involved $1,400 when the taxpayer was actually owed a refund of more than $8,500.
I don’t write about things like this often because I am confident in the work that my company does and do not operate in such ways. Watching out for such things, however, is something that is good advice beyond the tax realm. When you are giving people access to personal and financial information, you need to feel safe and secure in what they are doing. If someone’s way of doing business seems off, there are enough other people out there who will do what you need. Also, don’t let cost come into this calculus too strongly. There is often a reason when someone’s price seems too good to be true.
The article also mentioned a couple of lawyers who were caught after trying to evade paying all the taxes they owed. These are people who must have known that what they were doing was not on the up-and-up. I could even imagine that they thought their knowledge of the system gave them an advantage in trying to abuse it. Let this be a warning then that there is never a guarantee that punishment can be avoided.
A final commonality between some of these stories is how fraudulent tax returns often involve false credits and deductions. I’m sure that many people whose tax returns were handled by immoral preparers did not know that part of their return was fraudulent. If you are paying a professional to help you, you are relying on their expertise to lead you in the right direction. Being smart in those cases involves having these professionals explain to you what they are doing, and in a way that you can understand. They are your guides through a world that you do not know, but they should be able to talk you through it in a way that makes sense.
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