If you’ve been losing sleep over the possibility of a tax audit, put your mind at ease. Here are five reasons why you might want to stop worrying about it.
A Tax Audit is Not Always Trouble
An audit doesn’t automatically mean you’re in trouble. Sometimes, it’s just a random selection. Even if there’s a discrepancy in your return, like a math error or typo, the IRS may simply ask for additional documents or an amended return.
Most tax audits focus on returns filed within the last three years. Rarely do they go back more than six years, so you don’t need to worry about ancient tax seasons.
Reduce Your Risk
Certain items on your tax return can attract the IRS’s attention. Just be diligent and accurate in your data collection which can reduce your chances of an audit.
Stay Calm
If the IRS does audit you, don’t panic. It’s a specific process, and you can work through it with the right documentation. This is why it is important to work with a certified tax preparer or better yet, an Enrolled Agent. An Enrolled Agent (EA) is an individual who has earned the privilege of representing taxpayers before the Internal Revenue Service (IRS).
For taxpayers in the middle or lower income range and have relatively uncomplicated taxes, the likelihood of an IRS audit is quite minimal. For example: between the years of 2010 to 2019, the IRS audited approximately 0.25% of individual tax returns on record.
The IRS usually focuses their audits on high income earners. In 2019, a little more than 2% of Americans earning more than $5 million per year had their taxes audited. That’s down from 16% in 2010. “For taxpayers earning over $1 million, there has been substantial reduction in audit rates, but they are still audited more frequently than taxpayers earning below $200,000,” said Alex Muresianu, a policy analyst at the Tax Foundation.
Learn how to avoid the possibility of a tax audit…
Be thorough and accurate when reporting all of your expenses
Itemizing tax deductions with accuracy is essential
Provide appropriate details when required
File your taxes on time, as much as possible
Avoid amending returns. If you must, proceed with caution
Check your math. Now, check it again
Avoid using round numbers
Do not make too many deductions
Although there is no guarantee that the IRS won’t audit you, knowing some specific facts about tax audits during the filing process can help alleviate your concerns.
Now is the time to perform a mid-year review of your business activities. Staying on top of these five steps will benefit you throughout the year while saving time, money, and making tax time a breeze.
* Lower taxable income with these deductions
After assessing your cash flow, explore reinvesting within your business. Whether it’s buying new equipment or expanding your advertising efforts, these investments often come with tax advantages. As part of your business, you can typically deduct equipment and advertising costs on your tax returns.
Review this list of small business deductions you can take to help your business grow and lower taxable income:
* Managing personal and business finances separately
As your business income becomes consistent, consider opening a dedicated bank account or credit card for business use. This simplifies tracking income and expenses and provides a central reference point for tax filing.
Separating business and personal finances is a smart move. To get started:
Open Up Separate Accounts: Set up distinct bank accounts, with one for business transactions and the other for personal use. This will ensure a clear separation of these accounts.
Track Your Transactions: Record all your business related income and expenses separately. Use your favorite accounting software or a spreadsheet to stay organized.
Avoid Mixing Business and Personal Funds: Never use your business funds for personal expenses, and vice versa. Keep them separate for easier management.
Remember, this practice simplifies tax reporting during tax season and protects your financial well being!
* Organize receipts for expenses
As a business owner, working to maintain detailed records of your transactions is crucial to your tax time success. Here’s why keeping your business receipts organized matters:
Expense Management: Receipts will help you track your expenses effectively, ensuring you manage costs efficiently for all of your business needs.
Accounting and Budgeting: This data will provide a clear record of business expenses and all income, which can be used in financial statements and other accounting records.
Accurate Financial Records: Receipts serve as documented proof of financial transactions, essential for bookkeeping, accounting, and tax purposes.
Legal and Tax Compliance: Having receipts ensures compliance with tax laws and protects both buyers and sellers by injecting transparency into transactions.
So, snap those receipts and keep them organized during this mid year tax review — it’s more than just storage; it’s about financial health! If you haven’t done so yet, there’s still time to catch up!
What are the benefits of quarterly estimated tax payments and how should you prepare for them…
Avoid a Big Tax Bill: By paying quarterly, you are able to spread your tax liability throughout the year. This will prevent a hefty tax bill when it comes time to file your annual return. It’s like making payments in installments rather than all at once.
Penalty Prevention: You should stay current with your taxes. If you underpay or miss payments, the IRS may impose penalties. Quarterly payments will help you stay on track and avoid any surprises.
Estimation Process:
Gather Information: Estimate your taxable income, including any self-employment income, interest, dividends, and other earnings.
Deductions and Credits: Consider deductions (like business expenses) and tax credits (such as child tax credit or education credits).
Last Year’s Return: Use your previous year’s tax return as a guide.
Calculate Tax: Determine your income tax and self-employment tax (if applicable).
Remember, quarterly estimated tax payments keeps you in good standing with the IRS and ensures a smoother tax season.
As a business owner, maintaining meticulous records of your income and expenses is crucial. Here’s why:
Clear View of Cash Flow: Detailed records provide insight into your business’s financial health. You can track cash flow, identify patterns, and make informed decisions.
Maximizing Deductions: Good records help you identify eligible deductions. By keeping track of expenses, you can maximize deductions and reduce your taxable income.
Estimating Quarterly Tax Payments: Accurate records allow you to estimate quarterly tax payments effectively. Staying current with taxes ensures smooth financial management.
Whether you use software or spreadsheets, organized records empower your business!
Take the time to tackle these steps to minimize any tax liabilities and stay on top of your finances.
This blog post serves as informational content and does not constitute legal or financial advice.
The Internal Revenue Service (IRS) has announced the agenda for the 2024 Nationwide Tax Forum, which will feature 45 seminars aimed at enhancing the skills of tax professionals. This year’s forum, which includes contributions from the IRS and leading tax associations, will cover a broad spectrum of topics designed to help tax professionals better serve their clients.
Diverse Seminar Topics and Keynotes
The 2024 agenda will encompass subjects such as tax law updates, managing client examinations, digital assets, the Secure Act 2.0, the Employee Retention Credit, and clean energy credits. Highlighting the forum will be a keynote address and plenary session where IRS leadership will discuss ongoing efforts to improve service and transform enforcement and compliance activities.
Focus on Cybersecurity and Fraud Prevention
In addition to regular tax law updates and ethics courses, this year’s forum will feature two panel discussions on cybersecurity: “Tax Pros and Security Real-Life Threats and Steps to Protect Your Business” and “IRS Security Summit and the Written Information Security Plan.”
Experts from the Pell Center will also present a session titled “Cybersecurity for Tax Professionals,” and three more seminars will focus on combating abusive scams, schemes, and fraud.
Special Events and Sessions
Apart from the regular seminars, attendees can join special events such as:
Practice Management
Scams and Schemes Panel Discussion with CERCA
National Taxpayer Advocate Town Hall
Beneficial Ownership Information Reporting
Bilingual Offerings and Continuing Education Credits
Six of the forum’s most popular topics will be presented in both English and Spanish. Attendees can earn up to 19 continuing education credits by participating in one of the five forums held on the dates and locations listed below.
IRS Nationwide Tax Forum Dates and Locations
The forums will take place in:
Chicago, IL: July 9-11 (Standard rate deadline: June 25)
Orlando, FL: July 30-August 1 (Standard rate deadline: July 16)
Baltimore, MD: August 13-15 (Standard rate deadline: July 30)
Dallas, TX: August 20-22 (Standard rate deadline: August 6)
San Diego, CA: September 10-12 (Standard rate deadline: August 27)
Registration and Early Bird Discount
Tax professionals are encouraged to register by 5 p.m. ET on June 17 to benefit from the early bird rate of $255 per person, a savings of $54 off the standard rate and $135 off the on-site registration rate. After 5 p.m. ET on June 17, the standard pricing of $309 will apply until two weeks before the start of each forum (see above).
Association Discounts
Members of the American Bar Association (ABA), American Institute of Certified Public Accountants (AICPA), National Association of Enrolled Agents (NAEA), National Association of Tax Professionals (NATP), National Society of Accountants (NSA), and National Society of Tax Professionals (NSTP) can save an additional $10 off the early bird rate if they register by June 17.
For detailed information and registration, visit IRStaxforum.com.
Consistency and reliability are paramount in the world of tax and accounting software—and with the publication of the 2024 CPA Practice Advisor Readers’ Choice Awards results, Drake Software has good reason to celebrate. According to the CPA Practice Advisor, “In keeping with recent years, Drake Software continues to inspire the users of its tax prep, planning, management, and other systems to vote in high numbers.”
After maintaining a winning streak in various categories for an impressive 18 consecutive years, the following solutions from Drake Software were voted #1 in 2024:
Drake Tax® – Tax Preparation Software
Drake Tax® Planner™ – Tax Planning Systems
Drake Accounting® – 1099/W-2 Preparation
Drake Portals™ – Client Portals for Firms
Drake Documents® – Document Management and Storage
SiteDart Hosting™ – Website builders
DrakeCPE® – CPE provider
Drake Hosted™, powered by Rightworks™ – ASP/Hosted Solution Providers
This impressive sweep across multiple categories underscores Drake Software’s commitment to excellence and innovation in both the flagship Drake Tax product and its ecosystem of integrated tax preparation solutions.
Curious to experience Drake Tax in action? Sign up for a free trial today and discover firsthand why countless tax professionals rely on Drake Software for their tax and accounting needs.
Many businesses, enticed by misleading information, have found themselves unwittingly in non-compliance with ERC regulations. The IRS has urged tax preparers to act soon to verify their compliance, emphasizing the need for proactive review and correction.
To help tax preparers who are victims of misinformation, the IRS established the ERC Voluntary Disclosure Program. This program offers an opportunity for businesses to rectify erroneous filings by repaying only 80% of the claimed amount. Additionally, for claims pending processing, prompt action is advised to initiate the withdrawal process if eligibility criteria are not met.
The March 22 deadline for the Voluntary Disclosure Program is swiftly approaching, however, so it is imperative that businesses reassess their claims.
Seven warning signs of ERC non-compliance
The genesis of these cautionary measures lies in the deceptive marketing tactics employed by certain entities, which oversimplified ERC eligibility requirements. The IRS has highlighted seven key warning signs indicative of potentially erroneous claims, drawing attention to common pitfalls.
Excessive Quarters Claimed: Claiming ERC for all available quarters without meeting eligibility criteria.
Misinterpretation of Government Orders: Erroneously claiming ERC based on government orders without proper qualification.
False Reliance on OSHA Communications: Incorrectly citing Occupational Safety and Health Administration (OSHA) communications as grounds for ERC eligibility.
Inaccurate Employee Count and Calculations: Overclaiming by including ineligible wages or miscalculating credit amounts.
Unsubstantiated Supply Chain Disruptions: Erroneously attributing ERC eligibility to supply chain disruptions without meeting requisite conditions.
Misrepresentation of Tax Period Coverage: Falsely claiming ERC for entire tax periods without meeting suspension criteria.
Nonexistent or Ineligible Business: Claiming ERC for periods when no wages were paid or when the business did not exist.
Businesses must exercise caution and seek guidance from reputable tax professionals to navigate the complexities of ERC claims. It is essential to avoid promoters who fail to request detailed business records or exhibit a lack of understanding of eligibility criteria.
Tax preparers are responsible for staying informed and ensuring accurate ERC claims. The IRS provides valuable resources, including FAQs and an ERC Eligibility Checklist, to aid in understanding eligibility criteria. By leveraging these resources and fostering a proactive approach, tax preparers can protect themselves against ERC fraud and penalties for non-compliance.
Tax season is in full swing, and with it comes a surge in scams targeting tax professionals. The Internal Revenue Service (IRS) and Security Summit partners have issued a warning about a new email scam that impersonates various software companies, aiming to steal Electronic Filing Identification Numbers (EFINs). These scams pose a serious threat to both tax professionals and their clients, potentially leading to identity theft and fraudulent tax filings.
What is the EFIN documentation scam?
This recently growing scam involves fraudulent emails masquerading as communications from tax software providers. The emails request EFIN documents from tax professionals under the guise of a required verification process to transmit tax returns.
Unsuspecting victims who fall for this scam risk exposing sensitive client data and their own identities to malicious actors.
What is the IRS doing to mitigate the threat?
In response, the IRS is taking proactive measures to educate and protect tax professionals. Special educational webinars begin on February 12th, aimed at providing crucial information and strategies to combat this scam.
IRS Commissioner Danny Werfel emphasized the importance of remaining vigilant during this busy period, urging tax professionals to prioritize security measures within their practices.
How active is the EFIN documentation scam?
The IRS has already received numerous reports of this scam targeting tax professionals. Signs of a potential scam email include requests for EFIN documents via fax, instructions to obtain EFIN documentation from the IRS e-Services site, and inconsistencies in the email wording. Tax professionals who receive such emails are advised not to respond or take any action outlined in the message.
One example of the fraudulent email includes instructions to fax EFIN documents to a specified number, along with warnings that failure to comply will result in an inability to transmit tax returns:
Dear [recipient_email_address],
Help us protect you.
Because many Electronic Filing Identification Numbers (EFINs) are stolen each year and used to file fraudulent tax returns, the IRS has asked software vendors, such as Software A, to verify who the EFIN owner is by getting a copy of the IRS issued EFIN document(s). Our records show that we do not have a document for one or more of the EFINs that you transmit with.
What this means for you: Until your EFIN is verified, you will be unable to transmit returns. Please provide a copy of your EFIN Account Summary from IRS e-Services, with a status of ‘Completed’, to Software B for verification.
To send us your EFIN Summary document:
Fax to Software B at 631-995-5984
PLEASE NOTE THAT YOUR PREPARER TAX IDENTIFICATION NUMBER (PTIN) APPLICATION CANNOT BE USED AS DOCUMENTATION FOR YOUR EFIN.
If you do not have the above documentation you can get a copy of your IRS Application Summary from IRS e-Services by following the below steps or call the IRS e-Services helpline at 866-255-0654.
Sign in to your IRS e-Services account
Choose your organization from the list provided and click Submit
Click the Application link to access your existing application
Click the e-File Application link
Select the existing application link that applies to your organization
Click the Application Summary link for the area of the application you wish to enter
Click the Print Summary link at the bottom of the summary presented on the screen
If you have any questions please contact the Compliance Department at xxx-xx-xxxx for assistance.
Thank you for your business. We look forward to serving you this coming season. Software B (edited)
What will the IRS webinars on the EFIN scam cover?
Tax professionals are encouraged to attend the upcoming webinars hosted by the IRS, where cybersecurity experts will provide valuable insights and guidance. These sessions will equip professionals with the knowledge needed to identify and prevent potential scams, ensuring the security of their clients’ data and their own identities.
What else can tax professionals do to avoid becoming victims?
In addition to attending webinars, tax professionals are advised to remain vigilant against other phishing scams targeting EFINs, PTINs, and e-Services credentials. The IRS stresses the importance of promptly reporting any suspicious activity to the appropriate authorities, including the Treasury Inspector General for Tax Administration (TIGTA) and local IRS Stakeholder Liaisons.
As tax-related identity theft scams continue to evolve and proliferate, tax professionals must stay informed and proactive in safeguarding sensitive information. By remaining vigilant and taking proactive measures, tax professionals can help protect themselves and their clients from falling victim to these fraudulent schemes.
For more information and resources on identity theft prevention, tax professionals can visit the IRS’s Identity Theft Central and refer to Publication 4557, Safeguarding Taxpayer Data. Stay informed, stay vigilant, and stay protected during this tax season and beyond.
Diane Lopes Tax and Accounting Service