All Articles Tagged "audit"
We can all use a little good news with tax day on the horizon right?
One of the reasons to fear the IRS is the prospect of getting an audit. However, steep budget cuts since 2010 — $1 billion in budget cuts, to be exact — mean that the agency simply doesn’t have enough money to conduct a ton of audits. And the audits they are doing are more likely to be conducted on someone in a higher tax bracket. This might be the only time you’re happy that you’re not making a ton of cash.
One wealthy woman who isn’t happy about the IRS’ current state of affairs is Giselle Bundchen. Word is she made the Forbes list of wealthiest people for seven years in a row and ended up getting audited as a result. Named the richest supermodel in the world by raking in $42 million between June 2012 and June 2013, she says that figure is inaccurate and it brought unnecessary attention to her financial affairs. So the threat to rich people is very real. (I’m sure no one is crying crocodile tears over this.)
The only problem with this is that the budget cuts have also impacted the IRS’ ability to take your call. They’re responding to far fewer requests and call wait times have reached an average of more than 17 minutes in the last few years. If you need help (or know someone who does) and they make less than $52,000, are elderly, speak another language or have other extenuating circumstances, the Volunteer Income Tax Assistance program (VITA) might be able to help. But be warned: There will probably be a wait on that as well.
Tax season is a time of joy and pain. For some, Uncle Sam is a kind friend who drops a check in the mail just in time for spring. For others he’s a cruel collector, shaking money out of your pocket for the government to spend. But, some taxpayers are destined to meet a worse fate. One where a representative of the IRS looks through every receipt in their possession and decides how much they really owe your government. Getting audited is a real and present danger.
Should you be afraid? According to Michael Rozbruch, founder and CEO of Tax Resolution Services, only about 1.1 percent of people who file a 1040, the most common tax return, are audited. That rate increases to 12.5 percent for people earning $1 million or more. Most audits are triggered by the kind and amount of deductions taken. If you fit one of these profiles, watch yourself. Uncle Sam may turn his attention to you.
It’s tax season readers, and we’ve been offering up tons of advice (here, here, here, and here) to help you make it through. But even with all the advice in the world, there’s a chance you could be audited. Dun Dun Dunnnnnn!
We gathered a first-hand account of what it’s like to be audited, giving our brave author anonymity to spare her any further pain. Read on and take heed.
I was audited. It’s everyone’s tax-time nightmare and it can happen to the little guys. In fact, I was 27 years old when it happened, living in New York and making under $50,000 a year. When I got the letter in the mail, I didn’t know what to do. I imagined people yelling at me and demanding thousands more dollars, even though I had dutifully paid my taxes each year.
When the official letter arrived, it was very bare bones. It said I was being audited for the 2008 calendar year and said to come to the IRS office at a set date and time. It then listed several issues that I should be prepared to discuss, including “cash contributions,” “legal and professional services,” and “gross receipts or sales.” What does that mean? Also, the audit could run as long as four hours.
I immediately thought back to 2008 to figure what happened that year. I paid someone to do my taxes because I was freelancing. But that was the year I transitioned from freelancing back to a full-time position, so everything had been confusing.
I was terrified. I emailed my tax guy with a scanned copy of the letter from the IRS. He did nothing to comfort me, just saying audits happen and he would gladly be my representative for the IRS meeting for several hundred dollars. I declined.
Next, I called the examining officer who was assigned to my case, nearly in tears, and asked him if he could tell me more of what I should expect. I was planning to move into my own apartment that spring and didn’t want to spend all the money involved with that if I owed the government thousands of dollars. He, of course, told me there wasn’t much he could say over the phone, but I must have sounded so sad and scared that he eventually looked at my file and quickly calculated a worst-case scenario of owing like $800.
That chat slightly eased my concerns about the money, but I was still terrified of what exactly this audit would entail. A finance-focused friend from my church read over the letter and heard more about my situation, explaining what exactly everything meant and what I can do to prepare.
The phrase “The only thing that’s certain is death and taxes” is very true. And with taxes on the rise many people are attempting to find ways to avoid coughing up cash to the federal government, the wealthy included. According to The New York Times, new legislation for 2013 has raised the marginal income tax rate from 39.6 percent from 35 percent for individuals with income over $400,000 and for couples with income over $450,000 and deductions can start to phase out on income of around $250,000.
Some rich people are on board with the tax increases like Warren Buffett and Russell Simmons, but others are struggling to pay their rapidly growing tax debt.
Other wealthy people are having issues paying their tax bill. We recently talked about how the Queen of R&B, Ms. Mary J, was hit with a $900,000 tax lien and now another entertainer has joined the list. This week Perez Hilton reported that rapper Snoop Dogg is not on good terms with the IRS owing $546,000 in back taxes from 2009 and 2011. This isn’t the first time the “Gin and Juice” rapper has been in trouble with the IRS. He had this same issue back in 2008.
The list of celebrities that have experienced tax problems in the past include Wesley Snipes, Nicholas Cage, Toni Braxton, Lindsey Lohan and the goes on and on. However, you don’t have to be rich to get into tax trouble. StatisticsBrain.com reports on a study conducted by Pew Research, showing that 44 percent of audited individuals make under $25,000 per year. So although the rich folks are what we read about in the papers, there are millions of ordinary people who get audited that don’t make the front page.
Filing your taxes late, substantial understatements, disregarding tax rules and regulations, and bounced checks are just some things that could get you into trouble with the tax man. In most cases if you are found to have dabbled in tax evasion you may just get hit with a fine. However in other cases you could face criminal imprisonment for up to five years.
Now when it comes to taxes it’s important to make sure you reduce your tax burden as much as possible through legal practices spelled out by the IRS. This is called “tax avoidance” and is encouraged by the federal government. This includes, for example, finding all of your deductions and getting any credits you qualify for.
However you don’t want to reduce your tax burden by lying or being deceitful, which is tax evasion. The biggest difference between tax avoidance and tax evasion: one is illegal.
With the tax deadline approaching it’s important to keep your morals at the forefront. If you don’t feel qualified to do your own taxes then hire a professional. At least in that case, if you have been truthful with providing information and things hit the fan, you have a preparer to help clean it up. Income taxes aren’t going anywhere. It just makes since to be truthful and pay your tax bill instead of wondering if the tax man will come knocking at your door.
Every New Year many people make resolutions. But instead of focusing on the future, reflect on the past in order to make changes. According to Forbes, making a self audit of your life and career in the past year can give you a real clue as to the areas you need to change or develop.
The magazine takes a look at “career and life areas to focus on for the new year.” We have run through five of them.
1) Your morning routine. What didn’t you do last year in the morning that you wished you had? Was it exercise, planning your day, having a family breakfast, or quiet alone time? Make sure to do it this year.
2) Your evening routine. Don’t repeat bad and stressful habits from 2012. “If you normally come home from work frazzled, develop a new routine. You might stop at the gym, read or listen to a different genre during your commute, or spend a few minutes alone before checking mail, jumping into dinner preparation, or catching up with the family,” writes Forbes.
3) Your information diet. What kind of information are you digesting daily? Just like your food intake, your information intake can affect your mood. “Be deliberate about what gets your attention, and unsubscribe/cancel the rest,” says Forbes of magazine and newsletter subscriptions and your daily media diet.
4) Your online activity. How much time do you spend online? Have you become a member of every social network just to jump on the bandwagon? Forbes suggests keeping only the networks you use regularly and drop the others.
5) Your network. Are you repeating the same social scene as least year? If it is a case of been there, done that, then branch out. “Prune your relationships,” suggests Forbes. “You can still be friendly with old connections, but you may want to build new connections or deepen other relationships.”
What are some of the habits you had in 2013 that you want to shed for the new year?
Every year about this time, tax season rolls around and the filing frenzy begins. Although the tax forms come with instructions and the government sponsors many free online programs to help you file your claim yourself, tax preparation companies like H&R Block, Jackson Hewitt and Liberty Tax do a lot of business this time of year. In fact, just about anyone can prepare your tax return for you. Be smart about your taxes, though. Make sure you’re getting a qualified preparer and a legitimate return by asking some smart questions.
What’s your tax preparer ID number? Starting January 1, 2011, it was decided that all paid tax preparers must have a Preparer Tax Identification Number (PTIN) issued by the IRS and renewed each year. Each preparer must prove his competency and take continuing education classes to renew the PTIN each year. This helps the IRS keep tabs on possible scammers and incompetent preparers. If your preparer doesn’t have a PTIN, he’s not legitimate and you should take your returns elsewhere.
What exact deductions and credits did you put on my return? The whole reason you have someone prepare your taxes is to get as many deductions and credits as possible. You’re hoping that your tax bill will be lower or your tax refund will be higher than what you would have come out with on your own. But, if your preparer is adding on bogus claims on your return, you’re the one in hot water with the IRS–not him. So before you sign the dotted line, make sure you understand every single one of your deductions or credits.
What’s your policy on audits? It doesn’t matter who prepared your taxes. You are responsible for what the forms say. So in the event of a tax audit, you have to defend that return to the IRS. Some tax preparation companies offer to help you with an audit but most of them don’t, so know upfront what the policy is so you can either find a new preparer, or be aware of what could happen with an audit.
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(Chicago News Cooperative) — Chicago’s public schools face “fiscal calamity” unless administrators take steps to shore up the district’s underfunded teacher pensions and get spending under control, the Civic Federation said in its annual budget analysis released Monday. While the Federation said it supports the district’s $5.9 billion budget for fiscal year 2011, the report noted other threats to the district’s long-term financial position, including its repeated reliance on a reserve fund to deal with budget deficits. CPS managers also “must continue to emphasize cutting costs if they are going to head off an enormous fiscal crisis in just two years,” Federation President Laurence Msall said.
(TheNation.com) — “The Fed can no longer operate in virtual secrecy,” declared Vermont independent Bernie Sanders Tuesday after the Senate voted 96-0 to add his “Audit the Fed” amendment to the financial regulatory reform bill. The Senate amendment is not as muscular as the bipartisan legislation backed by the House, which was sponsored by Florida Congressman Alan Grayson, an aggressive progressive, and Texas Congressman Ron Paul, an equally agressive conservative with libertarian leanings. The Grayson-Paul bill authorizes audits by the Government Accountability Office of every item on the Federal Reserve’s balance sheet, including all credit facilities and all securities purchase programs; there would be exemption only for unreleased transcripts, minutes of closed-door meetings and the most recent decisions of the central bank. The Senate measure is narrower in its focus, but it would require the GAO to scrutinize some several trillion dollars in emergency lending that the Fed provided to big banks after the September, 2008, economic meltdown.