irs

Watch Out for Tax-Related Scams

Scam alert with woman using a laptop

“Thousands of people have lost millions of dollars and their personal information to tax scams,” according to the IRS. Criminals can contact victims through regular mail, telephone calls and email messages. Here are just two of the scams the tax agency has seen in recent months.

  1. Fake property liens. A tax bill is sent from a fictional government agency in the mail. The fake agency may have a legitimate sounding name such as the Bureau of Tax Enforcement. The bill is accompanied by a letter threatening an IRS lien or levy based on bogus overdue taxes. (A levy is a legal seizure of property to satisfy a tax debt. A lien is a legal claim against your property to secure payment of your tax debt.)
  2. Phony calls from the IRS. In this scam, criminals impersonating IRS employees call people and tell them that, if they don’t pay back taxes they owe, they will face arrest. The thieves then demand that the taxpayers pay their tax debts with a gift card, other prepaid cards or a wire transfer.

Important reminders

If you receive a text, letter, email or phone call […]

By |October 8th, 2019|irs|0 Comments

The Chances of an IRS Audit are Low, But Business Owners Should be Prepared

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Many business owners ask: How can I avoid an IRS audit? The good news is that the odds against being audited are in your favor. In fiscal year 2018, the IRS audited approximately 0.6% of individuals. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, audit rates are historically low.

There’s no 100% guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, completing your returns in a timely and accurate fashion with our firm certainly works in your favor. And it helps to know what might catch the attention of the IRS.

Audit red flags

A variety of tax-return entries may raise red flags with the IRS and may lead to an audit. Here are a few examples:

  • Significant inconsistencies between previous years’ filings and your most current filing,
  • Gross profit margin or expenses markedly different from those of other businesses in your industry, and
  • Miscalculated or unusually high deductions.

Certain types of deductions may be questioned by the IRS because there are strict record-keeping requirements for them • for example, auto and travel expense deductions. In addition, an owner-employee salary that’s inordinately higher or […]

By |September 30th, 2019|audit, business, irs|0 Comments

The Tax Implications of Being a Winner

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If you’re lucky enough to be a winner at gambling or the lottery, congratulations! After you celebrate, be ready to deal with the tax consequences of your good fortune.

Winning at gambling

Whether you win at the casino, a bingo hall, or elsewhere, you must report 100% of your winnings as taxable income. They’re reported on the “Other income” line on Schedule 1 of your 1040 tax return. To measure your winnings on a particular wager, use the net gain. For example, if a $30 bet at the race track turns into a $110 win, you’ve won $80, not $110.

You must separately keep track of losses. They’re deductible, but only as itemized deductions. Therefore, if you don’t itemize and take the standard deduction, you can’t deduct gambling losses. In addition, gambling losses are […]

By |August 13th, 2019|deduction, deductions, irs, tax, tax deductions|0 Comments

The IRS is Targeting Business Transactions in Bitcoin and Other Virtual Currencies

Cryptocurrency and blockchain. Platform creation of digital currency.

Bitcoin and other forms of virtual currency are gaining popularity. But many businesses, consumers, employees and investors are still confused about how they work and how to report transactions on their federal tax returns. And the IRS just announced that it is targeting virtual currency users in a new “educational letter” campaign.

The nuts and bolts

Unlike cash or credit cards, small businesses generally don’t accept bitcoin payments for routine transactions. However, a growing number of larger retailers — and online businesses — now accept payments. Businesses can also pay employees or independent contractors with virtual currency. The trend is expected to continue, so more small businesses may soon get on board.

Bitcoin has an equivalent value in real currency. It can be digitally traded between users. You can also purchase and exchange bitcoin with real currencies (such as U.S. dollars). The most common ways to obtain bitcoin are through virtual currency ATMs […]

By |August 13th, 2019|business, irs, w2|0 Comments

IRS Unveils New Tax Withholding Estimator

IRS_logo

The IRS has unveiled its latest online tool, the “Tax Withholding Estimator.” The estimator, which replaces the “Withholding Calculator,” assists workers, retirees, self-employed individuals, and other taxpayers in determining how much income tax should be withheld from wages and pension payments. Among other things, the estimator features (1) plain language to improve user comprehension; (2) a mobile-friendly design; (3) enhanced tips and links on various tax credits and deductions; and (4) an automatic calculation of the taxable portion of any Social Security benefits. In addition, the tool makes it easier to enter wages and withholding for each job held by the taxpayer and his or her spouse. The IRS encourages all taxpayers to use the tool to do a “Paycheck Checkup” and review their withholding for 2019. The new estimator is available at www.irs.gov/individuals/irs-tax-withholding-estimator . If you have questions about withholdings and your tax estimates, please contact your Linkenheimer CPA.

By |August 9th, 2019|irs, withhold|0 Comments

Businesses Can Utilize the Same Information IRS Auditors Use to Examine Tax Returns

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The IRS uses Audit Techniques Guides (ATGs) to help IRS examiners get ready for audits. Your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations.

Many ATGs target specific industries or businesses, such as construction, aerospace, art galleries, child care providers and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.

How they’re used

IRS auditors need to examine all types of businesses, as well as individual taxpayers and tax-exempt organizations. Each type of return might have unique industry issues, business practices and terminology. Before meeting with taxpayers and their advisors, auditors do their homework to understand various industries or issues, the accounting methods commonly used, how income is received, and areas where taxpayers may not be in compliance.

By using a specific ATG, an auditor may be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the business is located.

For example, one ATG focuses specifically on businesses […]

By |July 22nd, 2019|audit, business, irs, tax|0 Comments

M&A Transactions: Avoid Surprises from the IRS

Worried businesswoman reading a notification

If you’re considering buying or selling a business — or you’re in the process of a merger or acquisition — it’s important that both parties report the transaction to the IRS in the same way. Otherwise, you may increase your chances of being audited.

If a sale involves business assets (as opposed to stock or ownership interests), the buyer and the seller must generally report to the IRS the purchase price allocations that both use. This is done by attaching IRS Form 8594, “Asset Acquisition Statement,” to each of their respective federal income tax returns for the tax year that includes the transaction.

What’s reported?

When buying business assets in an M&A transaction, you must allocate the total purchase price to the specific assets that are acquired. The amount allocated to each asset then becomes its initial tax basis. For depreciable and amortizable assets, the initial tax basis of each asset determines the depreciation and amortization deductions for that asset after the acquisition. Depreciable and amortizable assets include:

  • Equipment,
  • Buildings and improvements,
  • Software,
  • Furniture, fixtures and
  • Intangibles (including customer lists, licenses, patents, copyrights and goodwill).

In addition to reporting the items above, you must also disclose […]

By |July 9th, 2019|audit, depreciation, irs|0 Comments

The Chances of IRS Audit are Down But You Should Still be Prepared

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The IRS just released its audit statistics for the 2018 fiscal year, and fewer taxpayers had their returns examined as compared with prior years. However, even though a small percentage of tax returns are being chosen for audit these days, that will be little consolation if yours is one of them.

Latest statistics

Overall, just 0.59% of individual tax returns were audited in 2018, as compared with 0.62% in 2017. This was the lowest percentage of audits conducted since 2002.

However, as in the past, those with very high incomes face greater odds. For example, in 2018, 2.21% of taxpayers with adjusted gross incomes (AGIs) of between $1 million and $5 million were audited (down from 3.52% in 2017).

The richest taxpayers, those with AGIs of $10 million and more, experienced a steep decline in audits. In 2018, 6.66% of their returns were audited, compared with 14.52% in 2017.

By |June 3rd, 2019|audit, irs, tax planning, taxpayer|0 Comments

It’s a Good Time to Check Your Withholding and Make Changes, if Necessary

Due to the massive changes in the Tax Cuts and Jobs Act (TCJA), the 2019 filing season resulted in surprises. Some filers who have gotten a refund in past years wound up owing money. The IRS reports that the number of refunds paid this year is down from last year — and the average refund is lower. As of May 10, 2019, the IRS paid out 101,590,000 refunds averaging $2,868. This compares with 102,582,000 refunds paid out in 2018 with an average amount of $2,940.

Of course, receiving a tax refund shouldn’t necessarily be your goal. It essentially means you’re giving the government an interest-free loan.

Law changes and withholding

Last year, the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks. In general, the amount withheld was reduced. This was done to reflect changes under the TCJA — including the increase in the standard deduction, suspension of personal exemptions and changes in tax rates.

The new tables may have provided the correct amount of tax withholding for some individuals, but they might have caused other taxpayers to not have enough money withheld to pay their ultimate […]

By |May 29th, 2019|irs, New Tax Laws, withhold|0 Comments

Check on Your Refund — and Find Out Why the IRS Might Not Send It

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It’s that time of year when many people who filed their tax returns in April are checking their mail or bank accounts to see if their refunds have landed. According to the IRS, most refunds are issued in less than 21 calendar days. However, it may take longer — and in rare cases, refunds might not come at all.

Your refund status

If you’re curious about when your refund will arrive, you can use the IRS “Where’s My Refund?” tool. Go to https://bit.ly/2cl5MZo and click “Check My Refund Status.” You’ll need your Social Security number, your filing status (single, married joint filer, etc.) and your exact refund amount.

In some cases, taxpayers who are expecting a refund may be notified that all or part of their refunds aren’t going to be paid. A number of situations can cause this to happen.

Refunds settle debts

The Treasury Offset Program can use all, or part, of a refund to settle certain debts, including:

  • Past-due federal tax debts,
  • State income tax obligations,
  • Past-due child and spousal support,
  • Federal agency debts such as a delinquent student loan, and
  • Certain unemployment compensation owed to a state.

If the federal government is going to “offset” a refund […]

By |May 9th, 2019|irs, refunds, taxes|0 Comments