Kay Bell has thoughts on How to avoid a tax audit, virtual or otherwise. Kay talks about how much deduction is “normal.” Audits aren’t fun, but if you maintain good records and report your income, don’t chicken out on taking deductions you deserve just because they’re bigger than “normal.”
Taxpayers should report suspected fraud to the IRS Identity Protection Specialized Unit at 1-800-908-4490. They should hold on to any letters sent to them from the IRS and fill out the IRS Identity theft Affidavit, a form for reporting fraud or suspected fraud. Victims will also need documentation to help prove their identity, including W-2 forms, previous tax returns and a photo ID.
But don’t hold your breath waiting for that refund:
Experts say it may take at least six months before taxpayers can get their stolen refunds back. (This blogger
Falling behind on payroll taxes is often fatal for small businesses. Arden Dale explains atSmartMoney Tax Blog:
Once the IRS adds its penalties, the debt can snowball. Companies can be fined for outright failure to pay or to report on the tax, and also for paying late
Actor Wesley Snipes was unable to play a victim well enough to get the U.S. Supreme Court to hear an appeal of his tax crime conviction. That means Mr. Snipes will complete his 3-year sentence on or about July 19, 2013. He has the consolation of knowing that after he is free, his former advisor Eddie Kahn will be securely held in the arms of the Bureau of Prisons until sometime in 2026.
The Tax Prof blog has a roundup. Additional blog coverage from TaxGrrrl , Russ Fox, Smartmoney Tax Blog, and Hit and Run.
Related: Wesley Snipes: victim of the system?
The IRS is trolling through county real estate transaction records in search of unreported taxable gifts. Arden Dale has more at the Smartmoney Tax Blog:
The agency has a low-profile but sweeping effort under way to find out about these transactions. It
Iowa, like other states, has rarely audited personal income tax returns on its own, prefering to piggyback on IRS exams. That may be changing in other states, reports Arden Dale:
Tax advisers say audits have increased in California, New York, New Jersey and Iowa. The Illinois Department of Revenue recently added 50 auditors, in part to help a group of 136 others work on individual and corporate income tax audits.
What triggers a state exam?
State audits tend to begin with red flags including a change of residence, out-of-state property holdings, real estate in general, and trusts or partnerships that hold different kinds of assets. Stock options also now get a lot of attention, according to AmyLynn Flood, partner, global human resource services at PriceWaterhouseCoopers.
Each state has its own set of taxes and its own pet issues. New York, for example, has gone after people who live in a neighboring state but spend time in a Manhattan pied-a-terre or upstate hideaway. Anything that suggests a contact or former contact with New York by someone who now claims to live out of state is a red flag, according to Stephen Breitstone, a partner at Meltzer Lippe, Goldstein & Breitstone, LLP in Mineola, N.Y.
Some people find their purpose in life is making mistakes so we don’t have to. Russ Fox celebrates these intrepid bad examples in his Bozo Tax Tips series:
Congress has decided to legislate through the Tax Code. There are hundreds of tax credits that now exist. These range from the Earned Income Credit, education credits, electric vehicle credits, and adoption credits. Some of these credits, such as the Earned Income Credit, are refundable credits: You can get a refund based on the credit even if you don
Did you turn 70 1/2 last year? Tomorrow is the deadline for taking the minimum required distribution from your retirement account, the Smartmoney Tax Blog reminds us.
Your main defense is to launch an investigation with the IRS, which will work to confirm your identity, track down the fraudster and recover your refund. Each incident has a different outcome, but most taxpayers should expect to wait at least six months for the case to be resolved, according to Identity Theft 911.
But don’t jump to the conclusion that your refund has been stolen. It takes six weeks or so to get a paper-return refund, and up to three weeks when you e-file. Check the IRS “where’s my refund” site before you panic.
The tax law allows you to deduct interest on up to $1.1 million of debt on a principal residence. The IRS is good enough at math to tell that 5% of 1.1 million is $55,000. If you are deducting more than that in home mortgage interest, the IRS is likely to ask just how much debt you have, reports Arden Dale at Smartmoney Tax Blog:
Tax rules distinguish between two kinds of home debt. There is home acquisition debt, which is a loan used to acquire, construct or substantially improve a qualified home, and is secured by the home. Then there is home equity debt, which is any other kind of loan that is also secured by the home…
IRS guidance last June helped set the rules straight. The agency said acquisition loans over $1 million may also qualify as home equity indebtedness. Now, says Labant, it is clear the taxpayer can deduct interest on the full $1.1 million, even if he has only one loan. The development, she adds, is
Kay Bell reports that in the last government fiscal year 2.1 million tax returns claimed $15.6 billion in first-time homebuyer tax credits. That $15.6 billion was supposed to fix the market for houses. How’s that working out? Smartmoney Tax Blog has the results:
Two and a half years later, sales in most residential markets are still anemic and prices are still falling.
The real estate gurus at Case-Shiller expect more bad news: prices could fall another 15%-25%.
The three-year period for claiming refunds for 2007 by filing an original 2007 return expires April 18. The IRS is sitting on a lot of unclaimed withholding that it will get to keep if people don’t get on the stick in the next few weeks and get their 2007 1040s filed. Kay Bell and the Smartmoney Tax Blog have more.
The tax law passed at the end of 2010 extending the Bush-era tax cuts also quintupled the lifetime gift-tax exemption, to $5 million. That provision expires at the end of 2012. This could mean there is a two-year window for large family gifts. The Smartmoney Tax Blog has more.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Disclaimer
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
