While you may be focused on your New Year’s Eve plans, before the clock strikes twelve, here are a few year-end tax moves to reduce your taxes. [Read more…]
If you are like the rest of the millions of individuals the IRS expects will put their tax return on extension, don’t be alarmed! Here are a few tips if you have yet to file your tax return! [Read more…]
You received the letter many dread. The Internal Revenue Service (IRS) has requested to audit your tax return. It could be for many different reasons. Maybe your income on your tax return did not match the amount reported to the IRS or your expenses seem to be a bit questionable. If so, you could be the lucky winner of a full IRS audit. No matter what reason the IRS decides to come knocking, one thing is certain – you must be prepared. As a former IRS agent, I’ve had the opportunity to participate in a host of audits, and time and time again, the key to surviving these unwanted ordeals is to make certain you understand your rights and responsibilities.
You should first get an understanding of what items are being audited and review the examiner’s document request. This request will outline items needed to substantiate the amount claimed on the tax return. Remember, during a tax audit, the burden of proof is on you.
Gather documents to substantiate questionable items on the tax return. What? You do not have any records? Have no fear! Remember, there are other methods of substantiating items on the tax return. For example, if you are a home health nurse and you previously claimed vehicle expenses, consider obtaining patient records for the appropriate year and estimate mileage based on these visits. Examiners are allowed to accept various types of evidence to substantiate items, including third-party testimony, affidavits and other types of verification.
If you are uncomfortable with the mere mention of the letters I-R-S, it may be a good idea to obtain an agent to work on your behalf. This may include a certified public accountant (CPA), an enrolled agent or even a tax attorney. Once you inform the IRS examiner you wish to obtain representation and the IRS has received your completed Form 2848 and Power of Attorney, the IRS must make all future contact with the representative only, thus alleviating you from speaking to the IRS.
Do Not Settle for Defeat
If you are not in agreement with the examiner’s position, you do have rights. First, you should raise concerns with the examiner. Most often, the examiner may be willing to compromise on certain issues, if you are willing to sign an agreed report. However, if you are unable to come to an agreement with the examiner, you can request a meeting with the examiner’s manager or request that the case is heard by appeals. Remember, the ultimate goal of both the examining group and appeals is to close the case without a subsequent trial. Therefore, if you stay persistent, chances are you will be able to obtain favorable results.
Remember, Your Choice, Your Future!
Kemberley Washington is a certified public accountant and a business professor at Dillard University. Kemberley is the author of The Ten Commandments to a Financial Healing. Follow her on Twitter @kemwashcpa.
Four overlooked and surprising tax deductions
It’s tax time! And many of us are looking for ways to boost our tax refund or reduce the amount we may potentially owe. Here are a few ways to reduce the amount you may have to pay Uncle Sam on April 15th!
#1 – Searching for a job
If last year, you were in the market searching for a job, you may be able to write off some of those expenses on your tax return. The IRS allows individuals to reduce their tax burden by deducting job search expenses for a new job within the taxpayer’s current occupation.
A taxpayer can deduct expenses such as preparing and mailing copies of resumes. In addition, taxpayers can deduct unreimbursed travel expenses if the primary purpose is to obtain a job.
Keep in mind, the taxpayer must itemize to take advantage of this deduction and this deduction is not made available for those searching for a job for the first time.
#2 – Credit card interest (business)
Are you a business owner? Did you make purchases on a credit card for qualified business expenses? While personal credit card interest is not deductible, you can deduct interest if your credit card was used for qualified business expenses. Keep in mind that you must be legally liable for that debt.
#3 – Mileage for charity and medical
Did you volunteer for your favorite charity? Did you have to travel to your doctor’s office for check ups and procedures? The mileage traveled can be deducted on your tax return.
Keep in mind, that you must itemize in order to take the deduction. If you did incur these expenses, you may be able to deduct:
- 23.5 cents per mile driven for medical purposes; and
- 14 cents per mile driven in service of charitable organizations.
Also worth noting, you are not able to deduct time spent volunteering.
#4 – Educator Expense
If you are a grade K-12 educator, including counselors, principals and aides, you may be able to deduct $250 for unreimbursed expenses you incurred during the school year.
This may include amounts paid for:
- Computer Equipment
- Materials used in the classroom
If you are like the rest of the 5 million individuals the IRS expects will put their tax return on extension, don’t be alarmed! Here are a few tips if you have yet to file your tax return!
Ask for an extension
If you simply don’t have the time or the effort to get your return out before midnight, consider filing an extension. The IRS offers a service via their website, Free File, which allows anyone to file for an extension or you can manually prepare your Form 4868. Both options will provide you with an additional six months to file, extending your tax return’s due date to October 15th instead. Keep in mind, filing an extension will help you avoid the failure to file penalty, which could be assessed at 5% monthly of unpaid taxes. In addition, this penalty can be assessed up to a whopping 25%!
Yes, the IRS still wants their money!
While filing an extension will give you time to file, it does not however, give you additional time to pay. If you file for an extension, you are required to pay 90% of the actual tax due. Failure to pay will expose you to the failure to pay penalty, which is approximately ½ of 1% monthly up to a 25% maximum penalty. If you can’t afford to pay the entire amount, at the very least, submit a partial payment in order to reduce penalties. In addition, consider using another payment option like an installment agreement, which would allow you to make monthly payments on the amount you expect to owe.
File past tax returns
Not only is your 2014 tax return due, but keep in mind, April 15th is the last day to claim a tax refund for the tax year 2011. The IRS allows individuals to claim a refund by filing an original tax return within 3 years of the tax deadline. Otherwise, you risk the chances of obtaining your tax refund.
Keep in mind, the IRS does not access a failure to file penalty for returns due a refund.
Remember: your choice, your future!