May 24, 2013

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What to Do When You Receive the Dreaded IRS Audit Notice

March 29, 2013 By

Receiving an IRS Audit Notice can make someone break out into a cold sweat, because no one looks forward to an IRS audit. However, the outcome of the impending audit will be determined by how you handle the notice. People often underestimate it and due to their lack of knowledge, end up in arms with the IRS, which can be avoided by taking the correct steps. Refer to the following when you receive the dreaded notice:

Read and Understand the Notice: You must read the IRS Audit Notice patiently and carefully. These notices carry lots of information like the year under audit, forms that will be examined, important dates, and all the contact related details. This will help you prepare for the impending audit.

Determine the Audit Location And Nature: Audits can either be correspondences requiring you to mail requested information to the audit office itself or a tax official might choose to visit your premises. In some cases, you may have to go to the audit office. In case the audits are correspondence-based, be careful enough lest you send original documents by mail; ensure that only photocopied or scanned documents are mailed. The audit officers may ask for a large number of documents and they take no responsibility if any of them are lost. You have to be very specific about what you send.

You also have the right to change the location of the audit if your tax professional lives in a different location. In fact, it is highly recommended that the audit is conducted as far away from your premises as possible.

Assess Yourself Well: Before heading out to the audit, properly assess yourself and determine whether you can handle it or not. If you are not confident enough, you will definitely need professional tax representation when dealing with the IRS. This should be determined beforehand. If you are using a tax pro, ensure that you understand him or her to avoid any form of confusion at the time of audit. The IRS may ask certain questions regarding your income as well as somewhat personal life. Your number one shield during a tax audit is your tax records and related documents, see to it that they are safely guarded because the IRS will definitely ask for proof.

The above steps are recommended will help you handle IRS tax Audit Notice effectively. However, if you are still unsure or confused about everything, understanding your rights can help you boost your confidence. Ignoring Audit notices or avoiding the IRS can be dangerous. Sometimes, proving to the IRS that you are committed to complying with their requirements may actually expedite the audit process.

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An Increase in Tax Audit Cases: Beware!

November 21, 2012 By

Tax audits are unpleasant and many taxpayers don’t look forward to a date with the IRS. When filing tax returns, one thing that interests many taxpayers is finding out the likelihood of their returns beckoning an audit. Audits are triggered and motivated by the information contained on the tax returns at the time of filing, especially extraordinary or exaggerated deductions. In most cases, audits are placed on the wealthiest taxpayers.

Many taxpayers have expressed their dissatisfaction with the way the IRS use up a lot of resources auditing taxpayers for very simple reasons. The wealthy taxpayers face more tax issues and since they have the financial resources, the IRS usually reaps from such audits. The highly targeted and most commonly audited taxpayers earn in excess of $10 million and the IRS audited 30% of taxpayers within this income bracket in 2011. This was an 18% increase from the previous year. As a result, many high income earners have enough reasons to worry about the possibility of IRS auditors knocking on their doors.

Other highly affected taxpayers were those who made between $5 and $10 million in 2011. An increase was also recorded among taxpayers who earned between $1 million and $5 million (there were 12% as opposed to the 6.7% that faced auditors the previous year). The $500,000-$1 million earners were not spared as 5.4% were audited, increasing from 3.4% in 2010. Despite the increase in audit cases, these figures are still low and taxpayers with a 5% possibility are 95% likely to evade the IRS auditors. According to the IRS, 1.1% of individual tax returns are targeted by the IRS with the high income earner targeted most.

The listed statistics differ from the IRS Global High Wealth Industry Group, this shouldn’t be confused. The Rich Squad was launched in 2009 and focuses mostly on assets as opposed to incomes. You are likely to be scrutinized if you own assets worth $10 million or more. Auditors may first focus on the conventional Form 1040 but gradually mirror on excise taxes, gift transfers, and charitable donations-related issues.

The IRS employs a meticulous approach when auditing high income earners. They don’t leave any stone unturned, as they spread and even review family companies and gifts amongst others. To boost chances of spotting and successfully auditing large and more advanced business enterprises and individuals, the IRS uses some of the best auditors, who will demand for documentation for almost everything owned, plus incomes and expenditures. It is therefore, paramount that you keep your receipts and tax related documentation safe.

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7 Tips to Selecting the Ideal Tax Preparer

April 13, 2012 By

Getting the right tax preparer may keep you from being audited by the IRS, save you on taxes payable by claiming the right deductions and credit, provide a more time and cost efficient service, among many other benefits. You therefore, need to carefully select the tax preparer to handle your taxes. Below are 7 tips that you can use to review a tax preparer before taking up his or her services:

1. Licensed by the IRS as a Tax Preparer

The first check for any tax preparer is to confirm that he or she is licensed by the IRS. In 2011, the IRS introduced new regulations for tax preparers. A tax preparer is now required to obtain a Preparer Tax Identification Number (PTIN) and an annual preparer license from the IRS before practicing. Preparers who are not Enrolled Agents, attorneys or CPAs will be required to sit and pass a test and undertake annual continuous training to keep their license. Therefore, ensure that your preparer is licensed and has a PTIN.

2. Professional Qualifications of Preparer

Besides the PTIN, it may also be advisable to seek for further professional qualifications. Depending on the nature of your returns, you may require an accountant or even an attorney to handle your returns. You should therefore check for such professions. You should also review the preparer with various professional bodies that he or she is a member of. You can use services such as Better Business Bureau to verify integrity of the consultant.

3. Costs of Services

You should also review the fees charged by the preparer. Different methods are used to charge the consultancy fees. Some preparers charge an hourly rate while others charge based on complexity and number of forms being filed. According to a survey done in 2010, the average paid by those interviewed was $233 for a State and IRS return for taxpayers who were itemizing and $128 for state and Federal returns for taxpayers who were using standard deduction. Therefore, ensure that you are not overcharged. You should also stay away from preparers who use unprofessional ways of charging fees such as fees structure based on the amount of refund that the preparer is able to get you.

4. Scope of Work Handled by Preparer

Preparers handle different aspects of tax and you need to ensure that a tax preparer provides the services that you require. Some tax preparers handle only IRS taxes while others handle Federal, State and Local taxes. Some tax preparers only handle certain types of taxpayers while others will not handle issues such as late taxes, installment tax requests, or tax representation. You therefore, need to know the scope of work of a given tax preparer before committing.

5. Years of Experience

The years of experience are also an important factor to consider for tax preparers. Tax is a complex subject and there are many different situations and matters that may arise. For this reason, experience plays an important role in knowing how to handle complex tax issues and how to deal with the IRS. It is therefore, advisable to seek a preparer with considerable years of experience in the business.

6. Support in Case of an IRS Audit

Some tax preparers and tax software firms provide an undertaking to represent you or provide support free of charge should the IRS want to audit you for returns that the preparer filed or that you filed using the tax software. Other tax service providers do not give such an undertaking. Therefore, you need to consider such terms before signing up for the preparer services.

7. Tax Support beyond Filing

You also need to find out if the preparer is available for any advice or tax support during the year. Some preparers are only available during peak tax season just for the services of filing returns. They are not available for any further tax consultancy such as representation, or even tax advice.

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