TAX Identity Theft

Why you should be concerned about your tax return.

In 2011 over 5 Billion dollars in refund checks were delivered. That’s a large sum of money considering all of it went to the Identity thieves.

Even though many of the fraudulent returns were filed using social security numbers of children, the deceased and individuals that would not normally file,There is very little to stop tax identity theft  from happening to us.  

An increasing number of taxpayers have filed their returns only to discover someone stole their identity and   filed a return without their knowledge. (I know of at least 3 people who had that experience). In addition to a feeling of violation and major annoyance, other issues that could arise are:

• Delayed Refund
• IRS having the wrong address on file
• Audit notice

A delayed refund check due to identity theft would cause many financial upsets. 

The IRS having an incorrect address might not be so bad for some but, an audit notice could cause a nervous breakdown for others.

Jokes aside, if you're a victim of Tax Identity theft, the first course of action should be to fill out a form 14039 with the IRS. (send it certified with return receipt). 

The next step is to call to confirm the IRS received your form 10439. Make sure you get the name, badge number and time you called the IRS representative to CYA (cover your assets).

 The next thing you should do is file a police report. Why you may ask?

Just in case you get audited you will have the police report as an affidavit. Let's face the facts, that the IRS is a large organization and many (if not most) of the departments in the IRS do not communicate with one another.

 Without a police report and proof of a filed form 14039, it could be well into the next year before the identity theft issue is resolved.

3 Ways to keep the IRS away.

IRS Proof your taxes with 3 simple actions.

 Don't commingle your funds – Make sure your business account and personal account are separate. This makes it easier to keep track of your expenses and income. And it will also allow you to keep track with how your business is doing.  And this will allow you to better evaluate your business productivity.

 Report all your 1099 income with your tax return. The IRS has computers that keep better track of the reported 1099s so it is very important that all of your 1099 income is reported. If not then you will be audited.

Keep good records: You might think this just helps in an audit. However, good record keeping can avoid IRS problems to begin with. Most audits are correspondence audits done by mail. Having good records may well avoid the more intensive in-person audits.

3 simple solutions can keep the IRS away.

Tax Debt reported to Credit Bureaus

Congress to consider allowing the IRS to report bad debt to credit bureaus

Congress is considering allowing the IRS to report tax debt to the three credit bureaus.

Equifax , Experian and TransUnion. The stated reason according to sources is because to promote earlier payment of debt.  I look at it from the standpoint of a bully having backup.

It has been proven that once the IRS audits you and wins (by tax payers giving into the pressure and not appealing the decision or just paying because they don’t want to deal with the hassle) This could possibly place many tax payers in a situation they cannot get out of. How would a tax payer borrow money to pay off the debt if they are not allowed to borrow money because the IRS reported owed debt to the credit bureaus.

 The IRS reporting debt to the Credit Bureaus may create or inflate the following.

• Larger financial burden for the tax payer
• Increase the amount of non filers.
• Increase the fear of the IRS

Allowing the IRS to report tax debt to the 3 major credit bureaus Is another attempt by congress to squeeze money out of the tax payer by intimidation and fear. You may be wondering why the government would allow the IRS to report tax debt, below are some logical (from my perspective) reasons for the government allowing this to happen.

• Lack of government fiscal responsibility
• Not many politicians want to attach their name to raising taxes on the middle class
• About $110 billion of the total debt was classified by IRS as uncollectable.

Possibly allowing the IRS to report tax debt is has no benefit to the tax payers but , it most definitely will help the IRS in their collection process. The question is at what cost?

Starting a Business?

Starting a Business?

 “Some nontraditional things to think about before you start your business”

With the economy in the tank and social security being more social than secure. People are turning to business start-ups. I am a big proponent of starting a business but there are some things one might want to consider before you start down the road of business ownership. What are some of the things to think about before you should start a business?

• How do you manage your personal finances?
• Is there a plan with how you handle the household?
• Are there many unfinished projects in your home?
•  Is your house hold operating with its optimal efficiency
• How do you handle your personal taxes?

You may be asking yourself why he is asking questions about the house hold when the topic is about business start up.

The answer is simple, most business start ups are ran in the same manner as the household is ran.

So what I’m I trying to say?

• If you have horrible money management skills on the personal side then you will have horrible money management skills on the Business start up side
•  
• If you do not have, a plan on how the household is ran than more than likely the business start up will have a less than stellar business plan.
•  
• If there are many unfinished projects around the home then the likely hood of a start up business having any longevity are slim.
•  
• If your household is not operating optimally then your start up business will not run optimally.
•  
• If you let a non professional prepare your personal taxes then you will do the same for your business. (and that’s not good).

This is an observation based on my experience as a tax prepare and business consultant.

There will always be exceptions but, for the most part it is very difficult to run a business start up if you cannot effectively run your home.  Ger your home situation fixed before you start your business.

Lets Talk Audits.

Tax Audits:

 What is an audit? As defined by the IRS.gov: An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate.

In other words the audit is a just a review of what was placed on your tax return, it can also be viewed as method of verification.

OK that was the politically correct answer for and audit, my opinion of the reason for an audit are:

• $          Politicians are not going to raise taxes on working citizens
• $          The government needs the money
• $          During low economic times small businesses grow at the fastest rate and don’t keep good        records thus,  it is the easiest way for the government to get more tax dollars.
• $         Just the mentioning of audits elicits compliance from guilty and non guilty tax payers.

There are some things to remember about an audit notice:

• $         Open all mail from the IRS immediately, the response time to the IRS at the least is a month (30 days) from the date the notice was sent. Not meeting IRS response deadlines could cost you thousands of dollars in fees and penalties.
• $         Always assume you are right, do not allow the IRS notice or auditor to intimidate you.  You have rights. And you are protected.
• $         You are not alone; the audit process for many is not a process to take on alone. There are many experts that may assist you.
• $         You can appeal, as long as you respond in a timely manner from corresponding with the auditor, the manager the audit of appeals or even tax court you can appeal, that is your right,

The one thing I want you to remember if nothing else grabs your attention always, always ,always open your main (especially your IRS mail) on the day you receive it and pay special attention to the response time. I have had to perform damage control for my clients because they waited too long to respond to the IRS and they and the only thing that could be done for them was an offer in compromise request and an appeal for the penalties.  I welcome your thoughts comments and questions. 

Things to consider heading into the new year.

This information was forwarded to me from a fellow Franchise owner, Thank you Mr. Henry Swint.

TO My CLIENTS, FRIENDS, AND BUSINESS ASSOCIATES:

As 2011 comes to a close, economic uncertainty continues to be a hot topic in Washington, D.C. and around the world. The Joint Select Committee on Deficit Reduction (i.e. the Super Committee) created by the Budget Control Act of 2011 failed to reach a bipartisan agreement to address the financial challenges facing the United States. This failure to reach an agreement has left huge tax questions unanswered. The following are selected key issues of interest:

Tax Provisions Expiring at the End of 2011

·            Alternative-minimum tax patch;

·            Social Security tax reduction of 2%;

·            Special accelerated depreciation;

·            Higher education deduction;

·            Home energy tax credit; and

·            Charitable contribution of IRA assets.

Tax Provisions Expiring at the End of 2012

·            Top 35% income tax rate;

·            Top 15% long-term capital gain and qualified dividend rates and

·            Estate and gift tax rates and exemption.

Tax Provisions Taking Effect in 2013

·            3.8% tax on net investment income for joint filers with adjusted gross income more than $250,000

·            ($200,000 for single filers). This additional tax applies to taxable interest, dividends, capital gains,

·            rents, royalties and some annuities;

·            Personal exemption phase-out;

·            Itemized deduction limitations; and

·            Reduction in flexible spending account limits.

WITH UNCERTAINTY COMES OPPORTUNITY. The best way to take advantage of the changing legislation landscape is to understand your options and be ready to act. I SUGGEST that you investigate all planning opportunities before year-end.YEAR-END TAX PLANNING is not complete without a review of your RETIREMENT AND ESTATE PLANS. Early planning is key to making the most of your opportunities. I am available to help with your planning. Please contact me if you would like my assistance in developing a strategy for you before the year is out or in the future.  Remember life constantly changes and so do our plans.  Properly planning for taxes and life events helps ease the burden.  Tax evasion is against the law.  Tax avoidance is your civic duty.

         

Here are 10 things you can do before the year is over for increased tax savings:

1.       Donate to Charity (Fall into Spring cleaning, remember to get a receipt for donations)

2.       Sell off bad investments (up to $3,000 loss)

3.       Pay your December mortgage Payment in December

4.       Hold off on bonuses and extra income until the New Year.

5.       Max out your 401(k) ($16,500 tax free maximum)

6.       Pore over out of pocket medical costs

7.       Get Married (get it legally activated now, have the ceremony later

8.       State Sales Taxes for large purchases (for buying cars, boats, planes etc.)

9.       Energy efficient  home improvements (not all qualify)

10.    Military reservists travel expenses

And many more…If you or someone you know need tax planning advice please don’t hesitate to call.

Enjoy a HAPPY NEW YEAR by starting your tax planning now.

THE IRS HAS BEEN BUSY……..HAVE YOU?

  The IRS have hired an additional 15, 000 agents for the upcoming tax season. In the state of Virginia alone  in 2 years 7,000 agents were hired. The government needs money and they have elicited the help of the IRS to help collect. They are serious and focused on targeting small businesses. Some items the IRS are requesting when they audit small businesses are:

•          Invoice and receipts
•          Logs to track miles
•          Income and expense ledger
•          Proof travel was taken for business.
•          Daily business calendar or Tax Diary
•          Proof of home office deductions
•          Many others

It is very important that the information above answers the following questions:

•          Who
•          What
•          When
•          Where
•          Why/How

I have always believed that too much information is better than not enough information.

When a small business is audited by the IRS, the questions that need answers are: 

•          Who were you with / whom did you visit (if any one)?
•         What was the purchase or the event for?
•          Where did this event or purchase take place?
•          When did the purchase or event take place?
•          Why or how does it pertain to the business?

I think it is better to have the answer to a question not asked then not have an answer to an asked question. 

To put it simple, if a business owner keeps thorough records in anticipation of an annual IRS audit then the business will not have anything to worry about.

Having thorough and organized records makes it more affordable for the tax lawyers, tax professionals or accountants to counsel a business during an IRS audit.