Just hearing the word audit is enough to send most people running for IRS Tax Audit Help and send a shiver up their spine. Wouldn’t it be great if to learn how to avoid a IRS tax audit? Well there are certain things you can look out for that will trigger an audit. Here are a few:
Claim Tax Deductions You Are Entitled To:
Take the legitimate credits and deductions that you are entitled to. If there are questionable items on your tax return that could raise a red flag you might want to send with the return an explanation and/or documentation to back up the claims legitimacy. If it is reviewed by a real person because the return has been flagged these will help, and prevent the need for IRS tax audit help.
The Discriminate Index Function:
The IRS uses a computer program to flag tax returns. This program is named the “Discriminate Index Function” (DIF). DIF compares a taxpayer’s deductions with others in the same income bracket. The program gives every return a computer generated score that indicates the probability that questionable items exist on the return. The more your return deviates from what is considered NORMAL, the higher your score will be and of course the more likely you will be audited.
Some Common IRS Tax Audit triggers are:
1) PLEASE for your sake, report all your income, this can help avoid an IRS tax audit. The IRS has computers that will compare income you reported when you filed your return to information it receives from employers and from 1099 forms that were issued by banks and brokerage firms to you. Compare the income you plan to report on your 1040 to your W2 forms and all 1099 forms, before you file.
2) Itemized deductions you have claimed that are unusually high based on your income can trigger an audit. For example, lets say you make $29,000 and you show charitable contributions of $10,000. This would not be reasonable for the income you have reported and, it is very likely the IRS will look closer at your return.
3) You wouldn’t think that being in business would be a trigger but it is one, especially if you are a sole proprietor and file Schedule C. This is partially true because the IRS has surmised that those that are self employed have more opportunity to hide income. It also allows the taxpayer opportunity to convert personal expenses into business expenses. The home office deduction is tricky so you might want to consult with a CPA or other tax professional to determine your eligibility before claiming the deduction.
4) Many taxpayers receive all or a large portion of their income in cash. Waiters, taxi drivers, hairdressers etc… are prime targets for an IRS audit. That’s in part because they receive much of their income in the form of cash tips. The best advice you will ever be given is to keep accurate records. A IRS publication 1244, Employee’s Daily Record of Tips and Report to Employer should be used to track daily tips.
5) In case you’re divorced, only one parent, usually the custodial parent can claim a child as a dependent. A tax waiver is required if that is not the case, signed by the custodial parent in order to take the deduction. Be aware the IRS matches tax deductions for alimony payments by one former spouse with the taxable income reported by the other.
6) Offshore accounts are rarely used by people whose wages are reported to the IRS by employers. The money generated in offshore accounts is legal so long as it is reported and taxes are paid. The failure to declare this income and to pay the tax on the income is a felony punishable by up to five years in prison.
7) If your return is signed by a tax preparer that is on the IRS’s list of “problem preparers”(preparers that have violated the law repeatedly), this increases the probability of audit selection. Too bad this list is not available to taxpayers. Wisely choose your tax preparer.
Any scheme, scam, questionable filing and even honest mistakes can raise a red flag and lead to an audit. Professional tax preparation help show you how to avoid an audit. However, should you be audited don’t hesitate to seek professional IRS tax audit help.
Tax preparation can be confusing and stressful get more information on IRS Tax Audit Help as well as other resources related to tax preparation and tax resolution at Tax Preparation Help here:
The process of selecting a return for an audit usually occurs in one of two ways.
First IRS uses computer programs to identify returns that may not include all W-2 or 1099 Income, as compared to waht was reported by Employers or Companies that hire Independent Contractors.
IRS is not above, and admits, to obtaining information about taxpayers income from sources such as newspapers (news), public records, previous returns, averages, and OTHER individuals! If IRS decides that the information is accurate, they may audit your return.
Audits, or “Examinations” as IRS calls them, can be handled by mail or in person.
If your return is examined by mail, IRS will send you a letter asking for more information. You can respond by mail or you can request an interview with an examiner.
If IRS wants to “see” you they will conduct your examination via a personal interview.
If you do not agree with what the examiner tells you in your meeting, you can meet with the examiner’s supervisor.
If you don’t agree with the examiner or the supervisor you can appeal to the Appeals Office of IRS.
A taxpayters Appeal Rights are explained in Publication 5 and Publication 556, Examination of Returns, Appeals Rights, and Claims for Refund.
If you do not wish to use the Appeals Office or disagree with the outcome you can take your case to the U.S. Tax Court, U.S. Court of Federal Claims, or the U.S. District Court where you live.
It is our suggestion, depending on the nature of the audit, that if IRS says “Examination”, you say “Enrolled Agent”
Cassandra Ingraham is a Tax Accountant and Instructor for Basic Tax Classes in the San Francisco Bay Area. During the balance of the year she can be found at http://www.taxeswilltravel.com providing Formal Introductions to Lenders for Accounts Receivable Funding (Factoring) and Purchase Order Funding.
Individuals with Tax issues can find dozens of self-help tax articles at: here
The information contained in this article is solely intended to increase the skills of paralegals and other legal staff who are employed virtually or non-virtually by bankruptcy attorneys. This information is NOT taught in any law school or paralegal training course. If you are a bankruptcy attorney and wish to train your entire staff, call 713Training.Com LLC at 614.875.4496.
WARNING: This information is not to be used by non-attorneys to prepare bankruptcy petitions for the general public. The information is solely intended to train legal professionals working under the direction of licensed bankruptcy attorneys.
1. If the county courthouse where the debtor(s) are filing bankruptcy is online, you will need to run a Lien Search for every piece of real estate the debtor(s) own. The lienholder information will also tell you if there are any foreclosures or judgment liens on the property which will need to be added to the debt sheets and/or asset pages.
2. If the debtor(s) are behind in their mortgage payments be sure to alert the attorney at once. If the debtor(s) are filing a Chapter 7 they may be required to catch up all the back payments before their bankruptcy can be discharged. If the debtor(s) are filing a Chapter 13, the back payments (also known as “arrears”) will need to be included inside the Chapter 13 plan so they can be paid in full.
3. To determine how many months are left to pay off a secure debt, divide the regular monthly payment by the total balance still owed. For example: $45,000 is the total balance owed. The monthly payment is $1,200. Therefore, $45,000 divided by $1,200 = 37.5. Round up the number to 38 and this is number of months you enter into your bankruptcy software on Schedule A under the FORM 22 MEANS TEST tab.
4. Be sure to check the Appraisal Date for any piece of real estate. If the property has not been appraised within the last 12 months you should alert your attorney at once. Your attorney may order the debtor(s) to get an appraisal or the attorney may direct you to call a real estate agent and get the appraisal. In the meantime, make a note on your Attorney Cover Sheet to let the attorney know the amount will need to be changed to a more current market value when it is obtained from the appraiser.
5. Make sure you notice the Type of real estate the property is. Do not assume real estate is the home the debtor(s) reside in. For example, if the real estate is rental property, that property normally generates a rental income for the debtor(s). This information MUST be included as additional income under Item #1 of the Statement of Affairs as well as on Schedule I of the bankruptcy petition.
6. If the debtor(s) own a mobile home, make sure you find out if the mobile home has had the wheels removed or not. If so, the mobile home should be listed as real property on Schedule A. If not, the mobile home is recorded in the same manner as other Motor Vehicles on Schedule B.
7. On the Date Incurred line within your bankruptcy software make sure you include the Monthly Payment and the total amount of monthly Arrearages. This information will ultimately appear on Schedule D when the bankruptcy petition is completed.
Here is an example: 10/2003, Mnthly Pymt = $960.55, Arrears: 2 mnths
Including this information for every secure debt will enable you to have the information available when completing the Means Test as well as if the debtor(s) become a Chapter 13. Additionally, including the monthly payment and arrearage information will also enable the debt to be easily cross-referenced and identified. For example, a mortgage payment of $960.55 will also appear under the monthly expenses of Schedule J as well as under Item 3(a) of the Statement of Affairs if the debtor(s) have made payments within the last three (3) months.
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About the Author
Victoria Ring is a Certified Paralegal and Bankruptcy Specialist. She has developed an entire line of training products and holds several seminars per year in drafting bankruptcy petitions. Her training materials have been approved by NALS for 7 CLE credits. Additionally, Victoria Ring provides speaking and in-house training services for bankruptcy law firms. Visit her website at here
Bankruptcy often is the last ultimate solution for many debtors who have unbearable debts. With filing a bankruptcy, you will get rid of your debts instantly and relief you from the harassing call of your creditors.
Although bankruptcy has many undesirable consequences such as your bad credit record will remain on your credit report for 7-10 years, but with a little work, you can improve your credit even before these negative records expire. Here are five easy steps you can take to rebuild your credit.
Step 1: Get to know your current credit status
The first step to rebuilding your credit is to look at exactly where you stand. Order all your three credit reports from those three national credit bureaus: TransUnion, Equifax, and Experian. You can order these reports online, it easy and secure.
Print each report and review it closely. Try to understand the information listed in your credit reports and highlight any negative records or inaccuracies that are damaging your credit score.
Step 2: Check the expiration dates
By law, your bad credit record will remain in your credit report for 7 to 10 years, but the exact expiry date might be different among these 3 reports. Your bad record will still remain at your credit report although you have pay off your old debts and discharge from bankruptcy.
Look up the exact date of each of bad records including judgments, liens, charge-offs, late payments, bankruptcy filings, and collection records. You will likely see a major improvement in your credit score when these records expire.
Step 3: Request For Correct On Any Inaccurate Records
If you find inaccurate records, fraudulent accounts, or records that should have expired on you credit reports, you have the right to send a separate dispute letter to each of the credit bureaus to correct your Equifax, Experian, and TransUnion records. The bureaus will initial a 30 days investigation to see whether your requests are valid and if so, they will correct the inaccuracy in your credit report.
Just one note, don’t try to dispute any of the positive information listed in your credit reports and it is a waste of time to attempt to dispute these records. Disputing positive information may actually harm your credit scores.
Step 4: Start to create good credits
Since there is no way to remove your bad record from your credit report, the best way to improve your credit score is to add good credits and building up your credit from there. You can easy do this by open up a new credit card from banks like Orchard Bank (Orchard bank has credit card plan designed specially to help people rebuild their credit after bankruptcy).
Use this new credit card responsibly and make the monthly payment timely; with this you are building new history of good credit behavior on your credit report. Over time, you may want to open additional credit card accounts or obtain a loan to boost your credit score even higher.
Step 5: Monitor your progress
Subscribe to a credit card monitoring service or get a credit card monitoring software and use it to track your credit score progress closely. Your credit score should improve steadily as you continue to use credit responsibly and add new positive information to your credit reports.
Summary
Bankruptcy does not need to chain you to bad credit for the next seven to ten years, but you have to be proactive in order to recover and rebuild your credit.
Cornie Herring is the Author from StudyKiosk.com. “StudyKiosk-Credit Basics” is an informational website on credit basics and debt consolidation.
