If you own a business or pay your taxes individually then you probably know that there is a possibility that the IRS (Internal Revenue Service) or State Taxing Agency can review your tax returns to verify whether all your incomes, expenses and credits are reported correctly and completely.
You may or may not have received a notice from IRS through an audit letter, a phone call or by an officer visiting the location of your business.
In any case, tax audit can be a scary situation, it might lead you to pay a lot of money. Unless of course, you have a company like Tax King to represent you legally.
This is where the services of Tax King will help you feel protected. It will be made sure that you do not pay your hard-earned money to the IRS without a strictly legal reason.
A lot of times, you feel confident that you have paid all your taxes correctly, yet the tax audit or may have a trick up his sleeve and could trick you into paying more than what you actually owe.
This is why it is vital to secure a representation from professional service like Tax King, even if you have not received a notice from IRS, it is better to consult a tax expert who knows the gimmicks that the IRS usually plays, so you are prepared well before a tax audit and know how to prevent an unusual scrutiny.
However, if you have received a tax audit notice from IRS or your state tax agency then it is definitely the most crucial time to consult the expertise of a tax representative.
Expert tax and accounting services can save you a lot of money, give you great financial, legal and commercial advice.
Especially if you live in New York, then you would know that there are more and more ever-growing liabilities from tax agencies such as IRS, the tax rules and regulations have evolved so much that there are taxation to be made on every penny you earn or spend. So get expert services in New York City.
IRS’s auditors are specifically trained to extract more information than legally required, and if you end up giving vital financial information of your business, then the auditor will find more reasons to make you pay up.
At this point, a professional service like Tax King can help you defend the attack from IRS auditors in the areas of Brooklyn, Bronx, Queens, Staten Island or Manhattan.
We got your back! And your front too. We have helped numerous taxpayers get through an IRS audit with minimal financial penalties.
Even if you do have outstanding tax payments, we can find ways to reduce tax penalties, worst case scenario, we can even arrange for an affordable payment plan such as an installment agreement.
Tax problems are faced by everyone, we understand if you got too busy in your personal life, if you were dealing with serious medical concerns or if you were just short on money to pay back your taxes at that time.
All this is very common, and we are here to help you, even if you haven’t paid your taxes in years.
However, if you do owe back taxes to the IRS, do not completely ignore them. Before you know it, tax penalties and interest can accrue, creating a snowball of debt.
What type of tax audits are there?
A tax audit occurs when the Internal Revenue Service (IRS) decides to examine your tax return with more focus and verify that your income and deductions are correct.
The purpose of tax audit is to either verify information according to the tax laws, uncover fraud or mistakenly sent inaccurate tax returns.
Normally, your tax return is selected for audit when a part of your return that you sent is out of the ordinary. Typically, there are three main types of IRS audits explained below:
Mail Audits (Correspondence Audit):
In all cases, whatever the IRS decides to audit, you will always receive notification of it by mail.
It could be a very simple audit or complex one. An audit sent to you via mail is the simplest type of IRS examination and does not legally require you to meet with the IRS auditor in person.
In correspondence audits, the IRS usually requests additional documentation to substantiate various items that you report on your tax return.
For instance, if you claim $5,000 in charitable deductions, the IRS could send you a letter requesting some proof of your donations.
And there you go, submitting adequate proof will conclude the audit in your favor if the IRS is satisfied, it will get off your back.
Then comes the office audit, it is an audit that is conducted in person at the local IRS office.
These audits are a little more severe and are conducted in-depth than mail audits
They usually include questioning by an audit officer about information on your return.
You will be asked to bring specific documents and information to the IRS office, such as the financial books and general records for your business activities or your personal bank statements and receipts.
Also, it is one of your rights to bring an accountant or lawyer to represent you at these meetings.
For that purpose, Tax King is here at your service in Manhattan, Bronx, Brooklyn, Staten Island and Queens.
The field audit is the most severe type of examination that the IRS conducts. Boy, you must have been naughty. Not to worry, if you have a friend like Tax King in your life, then such audits can be reduced.
In this type of audit, an IRS agent will conduct the audit at your home or the place of your business.
Normally, field audits are conducted when the IRS is questioning more than just a few deductions.
A field audit is generally very thorough and will cover many items on your return, possibly not what you imagined.
What happens as a result of such audits?
Normally, there are only three possible outcomes of an IRS audit.
In case if the IRS accepts and is satisfied with your explanations and the documentation that you provided, then there will be no change on your tax return.
And if the IRS suggest changes to your tax return, you can either agree to the changes or challenge the IRS agent’s assessment.
In the situation where you accept the changes, you will then sign an examination report or another form given by the IRS and establish some type of payment arrangement.
Finally, if you decide not to agree with the findings, you can set up a conference with an IRS manager to revie2w your case again.
Alternatively, you can request a formal appeals conference. These are your three options.
If you decide to choose services of a legal representation such as Tax King, we will first make sure to educate you with all the possible scenarios, especially you will be educated on how to avoid the tax audit in the first place.
Causes of Tax Audit?
Among other reasons, some causes of Tax Audits are:
➡ Failure to report income or sales.
➡ Failure to file a return.
➡ In case of excessive credits or any exclusions claimed on a return.
➡ Incorrect or misrepresented refund claims or returns filed.
➡ Differences found when the IRS compares a return to information they obtain from others such as the State Tax agency, banks, employers, and other businesses
➡ Results of previous audits conducted
➡ Any misuse of exemption certificates
Some commonly received mails from IRS are due to:
➡ You have a balance due that you need to pay to IRS.
➡ You are due a larger or smaller refund from the IRS.
➡ The IRS has questions about your tax return due to some ambiguity.
➡ The IRS needs to verify your identity.
➡ The IRS changed your tax return.
➡ The IRS needs additional information regarding a particular transaction or tax return.
➡ Delays in processing your return that the IRS needs to inform you about.
An audit can be engaged by something as simple as entering your SSN (social security number) incorrectly or misspelling your own name. Making math errors or entering data incorrectly can also cause a Tax Audit.
It is better to make sure everything is entered correctly. Or hire an external service to assist you with this.
Income not reported or reported incorrectly:
You might feel like not reporting the total income, leaving some numbers out, you know, to reduce the calculations’ burden.
But that might not be the best approach, as IRS receives copies of all the same incomes that you receive.
Even if your bank accounts are in foreign countries.
Aside from that, IRS keeps track of the history of your income, if there are huge discrepancies in the yearly income and if unfortunately, you do not have the supporting documents to prove the change in your income. Then you are in trouble.
Overstating and misrepresenting deductions:
If you paid money to a charity, or if you overstated your business expenses.
IRS will compare such expenses, any out of proportion incomes or last year’s return, will return to IRS acting out more severely.
If you did actually pay a large amount of money to a charity or church.
Always keep receipts. Any disproportionate amounts can arouse suspicion by the IRS. So do make sure that any business expenses that you report, should make sense and are accurate.
Some more common reasons why an IRS audit triggers in 2020 are:
The software trigger:
The IRS has a computer program system that is called Discriminant Information Function (DIF) this software has been designed exclusively to detect anomalies in tax returns of taxpayers.
It scans every tax return that the IRS receives.
DIF is on alert for duplicate information, such as two people claiming for some dependent, as well as deductions and credits that are arbitrary and do not have proper foundations.
Earnings are too low or too high:
IRS examines mostly the individuals and business that are either earning too much, compared to some same type of business, same neighborhoods and same earnings. Or if they are earning too less.
Any income that has been overlooked:
If your tax return fails to include even one of the sources of income, then the IRS will trigger an audit.
Spending or depositing a large sum of money:
You do that, and IRS is at your door before you even return home.
Exempted tax deductions:
If you are self-employed, then you are probably entitled to numerous exemptions.
If any of those tax deductions appear to be more than normal, there goes your discretion.
You’ll be under the spotlight in no time.
A lot of times, home based business owners do not understand the tax policies and laws.
And the IRS knows that, that is why such places are examined more often and more closely.
‘Cause people tend to misuse this facility and include their personal deductions in place for a business tax deduction.
Cash based business:
A business that gets you money in cash, is a red flag for IRS.
They tend to closely investigate such businesses because it is highly possible that such a business might not be reporting the income honestly and completely.
Your rights as a Taxpayer that you should know.
Among other rights, taxpayers have the right to know what steps to take to comply with the tax laws.
The Taxpayer Bill of Rights compels the IRS to provide taxpayers with unambiguous explanations of the laws.
There are several rights, which apply during tax audit as well.
The IRS communicates adequately to its employees and the taxpayers alike, that in US, the taxpayers have the following basic rights:
➡ A right to professional and courteous treatment by IRS employees.
➡ A right to privacy and confidentiality about tax matters, especially about the business.
➡ A right to know why the IRS is asking for information, how the IRS will use it, and what will happen if the requested information is not provided.
➡ A right to representation, by oneself or an authorized representative (such as expert tax service)
➡ A right to appeal disagreements, both within the IRS and before the courts.
Some Guidelines given by the IRS for the requested records:
In case of a tax audit, the IRS will provide you with a written request for the specific documents that they need for verification purposes.
How to organize the requested records:
Organizing the records, you bring or send to the IRS will speed the process and prevent errors or misunderstandings.
It is advised that you organize them by year and type of income or expense, and include a summary of transactions in it.
It is always reminded by the IRS to only send them copies of the documents. But never the original.
Records that the IRS will usually request:
Every audit focuses on certain aspects of a return, but the usual kinds of records the IRS requests will be on the following list.
Keep in mind that no record can stand on its own. You must include the reason and circumstances of surrounding any document that you send.
Receipts: Present these by date and attach notes on what they were for and how the receipt has any relation with your business.
In addition to providing dollars paid or received for a service or product, a certain kind of receipts can prove mileage.
Bills: Include the name of the person or organization receiving payment, mention the type of service and the dates on which you paid them.
Canceled checks: Couple these with copies of the bills they paid and any applicable employer reimbursement.
Legal papers: Be sure to include a description of what that case was about, when it happened and how it relates to your business, credit or deduction. Some examples include:
➡ Divorce settlements including custody agreements
➡ Criminal or civil defense papers
➡ Property acquisition
Loan agreements: Always include a copy of the original loan in case of the following:
➡ Names of the borrowers
➡ Home mortgage statements
➡ Location of the property
➡ Financial institution making the loan
➡ Amount borrowed
➡ Terms (the number of months to pay)
➡ Settlement sheet
➡ If the loan was from an institution, include an end of tax year statement indicating interest paid
➡ If the loan was not from an institution, provide a statement from the payee indicating the interest paid that year as well as the payee’s address and Social Security number
➡ Provide a break-down of how you used the money
Logs or diaries: Logs and diaries often show the dates and locations of your travel as well as the business purpose and mileage.
They can also show gambling winnings and losses as well as dates and locations. These might include job-hunting activity and expenses.
➡ Previous tax returns.
➡ Brokerage statements.
➡ Retirement account records
➡ Pay stubs
You may want to contact an expert tax professional such as Tax King to review your documents and make sure you understand what the discrepancy might be due to which the IRS decided to investigate.
If you completed your taxes at home using an online filing service or through a tax compilation company, the tax professionals can provide an audit defense service for a fee.
Tickets: Travel tickets should be labeled with the business purpose for the trip and group them with other receipts from the same trip, keep everything organized. Lottery tickets help provide proof of profit or loss.
Medical and Dental records:
➡ Medical savings account statements.
➡ In case of insurance or benefits, a copy of a handbook or other statements showing benefit and reimbursement policies.
➡ Physician statements such as a doctor or routine medical checkup.
➡ Capital improvement records for medical purposes including appraisals of the property performed both before and after the improvements.
➡ Contract for attendant care.
Theft or loss documents:
➡ All the insurance reports providing details of the nature of the loss or damage.
➡ In case of the damage not insured, provide copies of fire department or police reports on the said loss, theft or accident.
➡ Include photos or video showing the extent of the damage (if available)
➡ Appraisal from a qualified adjuster (typically provided by insurance company) showing fair market value of the property before and after as well as an estimate of the damage.
➡ Brief explanation of the loss.
Employment documents might include uniform policies or dress codes, continued education requirements, W-2 reimbursement statements or policies. These are to be provided if required.
Schedule K-1: These are used to report each shareholder’s share of income, losses, deductions and credits when an S corporation files its annual tax return, they can also be requested by the IRS.
How long does an audit take?
The duration of an audit varies depending on the type of audit; the severity and complexity of the issues; the availability or time required for availability of information requested; the availability of both parties for scheduling meetings; and your agreement or disagreement with the findings by IRS.
What to do if you don’t have the money or unable to pay?
At times, penalties and tax deficiencies can spike your tax bill to an unaffordable amount, but don’t worry, it’s not hopeless, and you can do one of three things:
Get an extension: You can call the phone number listed on the IRS bill and request for a short-term extension, but that is only possible if you are able to pay in full within 120 days. If not, then you have two other choices.
Monthly payment plan: You can go opt for the monthly payment plan, by going to the IRS website.
Monthly dues can be set up as automatic payments from a debit account such as your personal account.
Offer in Compromise: An offer in compromise is an agreement to settle the tax debt for less than the amount you owe. However, it is only possible if your earnings are lower than a specific number.
You’ll need to meet requirements such as proving financial hardship to be eligible.
That is all made easily possible, if you hire a tax expert professional service.
In New York, the IRS and taxing agencies are smart, and they tend to listen less and charge more.
A quick guide and walkthrough for the audit process is vital for someone who doesn’t have experience with the IRS.
That is why we recommend you to take the external assistance with tax king service when it comes to legal representation.
The odds will always be in your favor, this way. If you are in Brooklyn, Bronx, Queens, Staten Island or Manhattan, you can get expert tax services through Tax King, New York City