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How to avoid an audit
Across the nation, the words "IRS audit" may be one of the most feared phrases. But with the proper preparation and record keeping, you can avoid an audit, and successfully survive one if you are audited.
While there is no way to eliminate your chances of being audited, try following some of the tips below:
• Report all of your income on the proper lines of your tax return. If the income from your W-2's isn't reported where it should be, the IRS could get confused, and ask you to clarify.
• If a W-2 or 1099 form you received was incorrect, ask the issuer to send you a corrected copy and send it along with your return.
• Make sure you report all of the income that is associated with your social security number. (W-2's, 1099's and interest payments) The IRS uses your social security number to track income attributed to you, and matches it against the income you report.
• Keep detailed records of any deductions you make.
• Don't report a deduction twice. If you are filing using multiple schedules, it may be easy to mistakenly deduct the same expense on two different schedules. Review all of your forms that you did not make this common error.
• Keep copies of all substantiating material, such as W-2's, 1099's, canceled checks and relevant receipts filed with completed copies of your return. This will make them easier to locate if you are audited.
If you do get audited, don't panic. Remember that some people are selected to be audited at random, while other selections are based on certain statistical comparisons. However, receiving an audit notice doesn't automatically mean that you are in trouble with the IRS, or that you owe them more money. It simply means they have questions on your return. Your chances of successfully surviving an audit are greater if you are properly prepared, and have supporting documents for the information on your return.
The IRS Won't be Ignored.. Learn how a Tax Specialist can Help
In grade school if you were ever being bothered by a bully, a well-meaning teacher or parent my have advised you to "ignore him, and he'll go away." The results on the playground were probably uneven at best, but this approach certainly won't work when dealing with the taxman.
If you get a letter from the Internal Revenue Service, the last thing you want to do is to ignore it. A letter from the IRS is the first step for them to take action against you which could lead to them seizing your assets or garnish your wages.
Instead, you should deal with the problem, either by contacting the IRS yourself, or by hiring a tax specialist to assist you. Since tax specialists have experience dealing with the IRS and are extremely well-versed in the sometimes confusing tax code, they frequently have better success in reducing tax debt.
Only Certified Public Accountants, Enrolled Agents or Tax Attorneys are allowed to deal with the IRS to manage tax debt.
A tax professional can assist you with any of the following tax problems:
• Filing a late return: If you failed to pay your tax return, the IRS will be contacting you. Eventually, they will even file a return for you, called a Substitute for Return or SFR. You generally do not want the IRS to do this however, since they may not find every deduction you are entitled to and you may end up owning much more on your return than you would if you filed it yourself. However, you can remedy this by filing a late return, even if the IRS already filed a SFR on you behalf. A tax specialist otherwise overlook.
• Contest levies liens and wage garnishments: If you received notice that the IRS is going to take action against you, you do have the option to fight the ruling and have your fees reduced or eliminated. A tax specialist can help you through this process.
• Reduce penalties and interest: In many cases, the IRS's fees and penalties can add several thousand dollars to your tax bill. A tax specialist may be able to negotiate with the IRS to have these fees reduced.
While legitimate tax relief specialists can not promise that they will settle a claim "for pennies on the world," their many years of experience may result in a reduced tax bill.
By David Plowman
IRS Penalties and Interest for Late Tax Payments
There are very specific penalties and interest that the IRS charges for late or non-payments of income tax owed. The IRS also is very diligent about charging the penalties and interest and is usually timely in sending notices after the review of the tax return.
April 15th is the deadline for most people to file their individual income tax return and pay any tax owed. If you have not paid the tax in full and if there is any money owed, you will be sent a bill. Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short–term rate (currently 7%) plus 3 percent. Interest is compounded daily.
If you file on time but don't pay all amounts due on time, you'll generally have to pay a late payment penalty of one–half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is applied. Further, the one–half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. For individuals, who file by the return due date, the one-half of one percent rate decreases to one-quarter percent for any month in which an installment agreement is in effect.
If you owe tax and don't file on time, the total late–filing penalty is usually four and one-half percent of the tax owed for each month, or part of a month, that your return is late up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed.
You must file your return and pay your tax by the due date to avoid interest and penalty charges. For individuals, the due date is April 15 th of each year unless that date falls on a weekend. In that case, the due date is the first Monday after the 15 th.
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