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It’s Tax Time – What You Should Know and What You Shouldn’t Do

It’s Tax Time – What You Should Know and What You Shouldn’t Do
Did you know that 45 percent of American households don’t pay federal taxes? These are primarily people earn $35,000 or less. Additionally, you aren’t required to file taxes by the IRS if you meet this filing status criteria.
 
 
Filing Status Age Minimum W-2 Requirement Minimum Self Employment
Single 65 and Younger $10,300 $400
65 and Older $11,850 $400
Head of House 65 and Younger $13,250 $400
65 and Older $14,800 $400
Married Jointly 65 and Younger (both) $20,600 $400
65 and Older  (both) $23,100 $400
Married Separately Any $4,000 $400
Widower w/ Dependents 60 and Younger $16,600 $400
65 and Older $17,850 $400
 
In summary, if you’re making more than $10,300 in a year, you’re required to file taxes.
 
So, what next? Well, here’s important dates you should for filing your taxes with the IRS.
 
  • January 15 – 4th Quarter Taxes Due
  • February 15 – (Typical Bonus Day for Employer J )
  • April 18th – All Individual Taxes Must Be Filed from Previous Year.
  • October 17th Extended Individual Taxes Due
At the beginning of each year, an individual has 109 days to file their taxes by the deadline date April 18th. During this time, you will receive your different tax memorabilia including government loan interest forms, 1099-misc for contracting work, W-2, and more. You used to have to wait for all these forms in mail before you filled. Not anymore.
Today, everyone can conveniently file their taxes online using e-file. E-File began in 1986 and since then, the IRS has accepted e-filed billions of tax returns. You can e-file directly with the IRS or use tax preparation software, such as
 
 




This year, the IRS expects to issue refunds to around 70% to all tax payers. Last year, more than 109 million American received a refund that averaged $2,700. Not bad.
Check out 2014 filing statistics from 4/11/14 – 4/10/15 Source
 

Cheating or not filing your taxes - then what?

So, what about Americans who decide to not to file their taxes? I’m talking about Americans that are legally bound too if they meet the minimum filling status. The answer is a lot of Americans don’t file their taxes for different reasons when they should. The IRS estimates almost 8 million Americans don’t file taxes every year. According to IRS sources, out of 8 million only 158,000 cases were examined by IRS auditors. That’s like 0.001 percent of getting caught. Well, we don’t know what statistic that percent covers (earning bracket filing status, etc). In addition, the IRS will most likely tell you to file and charge you an inconvenience fee – instead of threatening prosecution. At any rate, you can guarantee yourself a place on the IRS radar the rest of your life!

Additionally, if questioned by the IRS about something, you may receive a correspondence audit in which the IRS will request further information about something on your return.
If you are full-time employee at a business, that business will be sending the IRS your W-2 earnings report and make it your responsibility to file with the IRS. In other words, the IRS will know you need to file a return. If you have been a paying taxes for years before and suddenly stopped, the IRS will notice immediately.
The IRS statute of limitations 6 years means you fall off the IRS radar for collection. However, there is no stature of limitations if you claim false, fraudulent, or are found to have missing tax returns. Expect to receive exponential interest fees should the IRS catch you. Below are figures for chances of being audited based on your income bracket.
 
Chances of being audited ~
  • Earning under $25,000 – 0.93 %
  • $50,000 - $25,000 – 0.45%
  • $75,000 - $50,000 – 0.53%
  • $100,000 - $75,000 – 0.52%
  • $100,000 – or more - Your chances steadily increase up to 16% for millionaires
 
Remember, your chances of being audited increase when you raise red flags with the IRS. If you made $50,000 last year and donated $35,000 to charity, this red flag makes the IRS question how you made a living off 15,000 and why you became so generous. Let’s review common red flags the IRS recognizes.
 
Red Flags with IRS ~
  • If you earn $200,000 or more a year, your chance of being audited hovers around 1% – 16% percent. The IRS makes their money auditing higher income earners because they typically write off more than a lower income earner.
  • Failing to report any 1099 or W-2. Remember, the IRS receives all your forms and failure to claim them (even if your earnings are LOW on these forms) the IRS computers will catch it. They may not hassle to bother you for a smaller mistake – but more than likely your return will be flagged.
  • If you are taking large deductions compared to yearly income, the IRS might notice. Be prepared to provide necessary documentation for any large deductions you claim.
  • Running a small business? Claiming a net loss? Be prepared to provide proof of losses. Don’t even think about hiding income you earned. The IRS is diligent pursuing cash-savvy businesses like restaurants and car washes.
  • If you rent properties and claim a loss, remember the IRS scrutinize these types of claims on returns. The IRS carefully reviews hours a filer claims as a real estate professional.
  • Alimony deductions are complicated and some tax payers file these incorrectly using a different filing status.
  • A Hobby does not qualify as loss income loss. It can only qualify if the hobby is run in a business like manner.
  • High Travel, Meals, Business, Entertainment expenses will certainly raise red flags. Keep receipts for anything over $75 as proof.
  • Foreign bank accounts are required to be reported. These are filed using a FinCEN Form 114.
  • Claiming use of a business vehicle for 80% or more for work can trip a red flag. You might have to prove to an agent this expensive write off is justified.
  • Early 401k or IRA payout must be filled in accordance with IRS. In addition to Federal withholding, there is a a 10% hardship tax deducted unless you qualify on the IRS chart and wave this.
  • Gambling is a whole new ballpark for tax filers – make sure you are claiming substantial losses and gains. Casinos report on their W-2G big payouts so be prepared to account if the Casino listed you as payee.
  • Large Deposit to Bank accounts in excess of $10,000 are red flags. Be prepared to provide proof and reason for such a large deposit – especially if you are in the lower income bracket.
 
In addition to earnings brackets, the IRS runs a DIF Score and applies it to every filed tax return. A DIF Score is a number that discriminates a return the IRS should look more closely or audit. This score is adjusted accordingly per any red flags the IRS computers find, including larger charitable contributions, office deductions, travel expenses, auto expenses, and registration expenses. The Unreported Income Discernment Index Formula (UI DIF) to determine the probability of erroneous information on a return. If your return triggers enough red flags in the IRS system, you can be subject to an automated audit.
 
Don’t even think about typing different W-2 earnings numbers into your E-File return and think you have a chance the IRS will overlook it. The IRS computers will catch your mistake and these are the easiest red flags the IRS can spot.
 
How Does an Audit Happen?
 
Mail: you receive a request for documentation or support evidence of a return. Generally, this goes no further than mail.
Office: IRS agents need more than a few forms of documentation and will visit a business
In-Person Field Audit: expect a visit from some IRS agents to verify a home office, business, or come face to face with you.
In 2011, of the 141.5 million returns processed by the IRS, 1.1 percent were audited. You have a greater chance of wining the Lottery before an IRS agent serves you. With budget cuts continually happening in Congress as well, fewer tax IRS audits are being done since 2012. IN 2016, the IRS is reported to do even fewer audits that in previous years.
 
Conclusion - Turbo Tax 2016Turbo Tax Free Software
 
Filing your taxes used to be a paper trail headache with errors and a higher chance of the IRS auditing your mistakes. Today, e-filing taxes is fast, efficient, and hassle free. Start filing your taxes online. Turbo Tax is the nations most popular online e-filing tax software available. It comes with audit defense add-on to secure your return and give the IRS their own piece of mind. Turbo Tax has free, professional, and business editions.
 
Have You Been Audited?
 
We want to hear from individuals that have been audited by the IRS at random, evasion, or other reasons. Please share your experience regarding initial point of contact by the IRS, follow-up, and resolution. Please don’t feel timid in sharing why you were audited either – you will only be helping others learning from your experience.
 
 
Sources
 
http://www.timesfreepress.com/news/business/aroundregion/story/2016/jan/24/tax-filing-seasunderway-and-irs-says-most-ame/345950/
http://www.slate.com/articles/news_and_politics/explainer/2009/04/taxes_schmaxes.html
http://www.kiplinger.com/article/taxes/T056-C005-S001-what-to-do-if-the-irs-audits-your-tax-return.html
http://www.sfchronicle.com/business/networth/article/IRS-income-tax-audit-chances-are-slim-except-for-6202608.php
http://www.fool.com/investing/general/2016/01/18/5-tax-breaks-that-could-lead-to-an-audit-in-2016.aspx
http://www.kiplinger.com/slideshow/taxes/T056-S011-tax-audit-red-flags/index.html
 
 

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Sunday, 25 June 2017

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