For small business owners, preparing today can make tax season less stressful

As residents throughout New York State prepare to gather with family and friends next week for the Thanksgiving holiday, Jan. 1 and 2016 are just around the corner. Also not far off, or far enough for most people’s liking, is the dreaded April 15 tax filing deadline. For small business owners, there are important steps that should be taken today regarding end-of-the-year tax planning that can make the upcoming tax season much less stressful.

For any business owner, having an organized and partially automated process for keeping track of financial records is a must. Today’s marketplace is flooded with accounting and tax-preparation online software programs that make it much easier to organize and keep track of a business-related expenses, income and deductions. For a small business owner, not only is it important to use one of these programs, but it’s also wise to input related financial data on a regular and consistent basis.

In addition to ensuring that one’s financial records are organized and up-to-date, business owners are also advised to, based on a business’ financial situation, plan and save for expected tax liabilities. Doing so will ensure that a business is able to meet its tax obligations and can prevent a business from incurring fines and penalties imposed by the Internal Revenue Service.

The end of the calendar year is also an opportune time for business owners to become educated about any current or impending tax law changes. For example, many small business owners will be impacted by changes related to the Affordable Care Act. Additionally, it’s important to be aware of any and all tax-deadline changes.

While ensuring that financial records are organized, planning for tax-related expenses and keeping abreast of tax changes can greatly benefit a business owner and his or her bottom-line, come tax time, it’s wise to turn to a tax professional. Likewise, small business owners who have questions or concerns about tax issues are advised to consult with an attorney.

Is it possible to correct tax errors prior to the IRS noticing?

We are all human and therefore prone to making the occasional mistake or two. This includes financial errors concerning one’s personal or business expenditures as well as tax-related faux pas. This is something that even the Internal Revenue Service acknowledges and seems to understand. However, depending on the type of mistake, the agency’s response may not seem very forgiving.

The IRS lists the following tax-related mistakes as being among the most commonly made by taxpayers.

  • Failing to provide or making errors when entering Social Security numbers
  • Adding, subtraction or other math-related errors
  • Using the wrong filing status (i.e. single v. head of household)
  • Taking too many credits or deductions or those to which an individual isn’t eligable
  • Forgetting to sign or date tax forms

While many of the common tax mistakes cited by the IRS can be easily corrected and shouldn’t result in any fines or other penalties, other tax errors may be viewed as being willful in nature and therefore carry hefty penalties. For example, if the IRS suspects or has reason or evidence to believe that an individual took action to avoid paying taxes, he or she may not only be hit with costly fines, but may also face criminal tax evasion charges.

For individuals who wish to rectify mistakes made on filed tax documents prior to the IRS’ discovery of such errors, a Form 1040X can be filed. When doing so, an individual must be certain to reference the specific tax document and year that the amended form should replace as well as the specific changes and corrected amounts.

In cases where an individual learns that he or she is being audited or has been contacted by the IRS in reference to tax mistakes, it’s important to contact an attorney.

Reducing tax liabilities via personal and business deductions

When it comes to taxes, most Americans are looking for any and every way possible to avoid handing over their hard-earned dollars to Uncle Sam. While failing to file or pay one’s taxes is not an advisable means of accomplishing this goal; there are legitimate ways that one can deduct both personal and, if applicable, business expenses to reduce tax liabilities.

When it comes to personal tax deductions, there are certain deductions that anyone who qualifies can take advantage of. These include school supply expenses for teachers, alimony payments and interest on student loans. Additionally, self-employed individuals who contribute to their own retirement plan and pay their own health insurance can deduct these expenses.

In some cases, it makes financial sense for an individual to use a Schedule A tax form and itemize deductions. Such deductions may relate to medical expenses, gifts and donations as well as taxes paid on real estate, personal property and mortgage interest. When it comes to both standard and itemized personal deductions, it’s important to understand and abide by the Internal Revenue Service’s restrictions and rules.

This same advice should be heeded by individuals who plan to deduct business-related expenses. In general, business deductions include “anything that is an ordinary or necessary expense for your business, or that enhances your business.” It’s important to note, however, that not all business-related expenses can be deducted at 100 percent of their value. This includes business lunches, client gifts and motor vehicle expenses.

Individuals and business owners who fail to seek advice and assistance when taking tax deductions can make mistakes and incur IRS fines and penalties. In some cases, such deductions can even lead to an IRS audit and possible criminal charges.

Why individuals facing IRS criminal charges need an attorney

While there’s no way for an individual to completely avoid paying taxes, there are ways to cut and reduce the amount of taxes an individual owes. By being proactive and engaging in tax planning, an individual can often reduce his or her tax liabilities substantially. It’s important to note, however, that there are creative strategies that can be employed to reduce the amount of taxes one pays and then there are those that are questionable or outright illegal.

Simply failing to file and/or pay one’s taxes is never a good idea. Not only is an individual likely to accrue costly fees and penalties, but he or she may also face criminal charges related to tax evasion. Additionally, it’s never a good idea to file or submit tax-related documents that contain false or doctored figures. Again, an individual who under- reports the amount of income or overestimates deductions will incur costly fines and penalties and may face charges of tax fraud.

In cases where an individual learns that he or she is being investigated or audited by the Internal Revenue Service, it’s wise to contact an attorney. It’s especially important to retain a strong legal advocate and representative if an individual is concerned that an IRS audit or investigation may result in the discovery of questionable or illegal tax-avoidance activities.

The IRS takes matters related to possible acts of tax fraud and evasion very seriously and individuals who are convicted of criminal tax charges often pay dearly—both financially and personally. From punitive financial penalties to lengthy prison sentences, the IRS aims to make examples of individuals who the agency believes are attempting to avoid paying taxes.

Residents in New York who have questions or concerns about their current or past tax-planning strategies can obtain sound legal advice and guidance from an attorney at Timothy S. Hart Law Group. Our attorneys are well-versed in all tax matters and routinely help individuals who are facing IRS audits, fines, liens, levies and criminal charges.

Should tax preparers be licensed by the IRS?

Each year, countless Americans are duped by so-called tax preparers who commit identity theft or fraud, or at the very least, file incomplete or inaccurate returns. Possibly contributing to this problem is the fact that the IRS lost the ability to regulate the licensing of tax preparers who are not attorneys or CPAs last year following a Supreme Court ruling.

However, a new bipartisan bill that has been proposed in Congress would give the Department of the Treasury and the IRS the authority to regulate tax preparers once more. As a recent Forbes article reported, the bill would allow the two agencies to oversee “all aspects of Federal tax practice, including paid tax return preparers.”

Ultimately, this would mean people who prepare taxes for profit will once again have to pass exams, fulfill continuing legal education requirements and maintain a valid preparer tax identification number in order to be licensed to prepare taxes.

Nina E. Olson, the National Taxpayer Advocate, as well as Congress and the IRS think that the change could improve the service taxpayers receive and also weed out incompetent or criminal tax preparers. However, the author of the Forbes article thinks this belief might be too optimistic, which you can read more about here.

The bottom line is that it’s extremely important to have your taxes prepared by someone who knows what they are doing. While a license doesn’t guarantee that your tax preparer is honest and competent, having the IRS step in can help shut down at least some of those who are not.

As always, before trusting anyone with your tax issues, be sure to get their background information and references.

Recently passed bills affects many U.S. taxpayers

In two recent blog posts, we discussed issues that may affect and lengthen the statute of limitations for IRS Audits as well as options for taxpayers who fail to comply with FATCA reporting requirements. Recent actions by members of the U.S. Congress resulted in some important changes with regard to both of these IRS matters.

Oddly enough, these important tax changes were rolled into a completely non-tax related bill, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, making it likely that many taxpayers will miss them. Below are some of the important deadline and other changes that affect individual taxpayers, business owners and foreign-account holders.

Previously, an individual who was audited could expect to produce related financial records for the last three years and, under certain circumstances six or more years. However, with these most-recent tax changes, the standard IRS audit period increased from three to six years.

For business owners, the deadlines for tax filings changed with regard to those who have business entities registered as partnerships and C corporations. To avoid possible fines or penalties, business owners would be wise to double-check with a tax professional about any applicable changes to tax-related filing deadlines.

For U.S. citizens with foreign account assets equaling $10,000 or greater, the deadline for filing a FBAR changed from April 15 to June 30. Additionally, much like one’s income tax return, an individual can now also file for a six month FBAR filing extension. As we noted in a previous blog, it’s important that foreign account and asset holders remain compliant with IRS reporting requirements as those who fail to do so can face fines that, in some cases, may exceed one’s entire account balance.

Individuals who have questions or concerns about these and other IRS changes and matters can benefit from seeking the advice and assistance of a tax attorney.

What you need to know about IRS audits

For many who reside in the state of New York, one of their biggest fears is to be audited by the Internal Revenue Service. People who are concerned about this occurring probably believe that three years after a return is filed, they are in the clear. While it is true the statute of limitations for tax returns is generally three years, under certain circumstances it is possible that period could extend to six years. In some cases it could go even longer.

The audit period could extend from three to six years in situations where in completing the tax return, the tax player substantially understated his or her income. But just what does that mean? This situation arises when the taxpayer fails to account for more than a quarter of his or her income. The statute of limitations will start to run on either the date the filing is due or the date in which it is filed—whichever is later.

The IRS could also extend the audit period to six years in situations where the taxpayer has omitted more than $5,000 in foreign income. This might arise in situations where the taxpayer has accrued this income as a result of interest on an account that is overseas.

As we mentioned above there are other situations where the statutes of limitations could run even longer. For example, when forms are missing, it is possible that the IRS might attempt to reach back more than a decade.

Steps should be taken along the way to try to prevent audits from occurring. When they do however, a tax attorney can be of great help in minimizing the damage.


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