Could you get audited in 2014 ?

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Could you get audited in 2014 ?

Mar 31, 2014 Posted by Sanjiv No Comments

The IRS is on the prowl this year and they could be coming after you. The Internal Revenue Service is able to more easily identify possible red flags that will trigger audits thanks to computerized checks and an improved detection system.

Audits are normally triggered when a tax return is filed containing something unusual such as a deduction that is above average. The taxpayer has nothing to worry about as long as they are able to properly defend the filings with documentation and logic. Unfortunately, if this happens, you will still have to deal with the added stress and the response time.

Below are 9 signs that you might get audited this year.

You Forgot To File One Of The Tax FormsAll tax forms sent out to taxpayers are also sent to the IRS. If you forget to file one of the forms you received with your taxes, the IRS might flag your tax return to be reviewed.

You Are Self-employedAlthough it does not seem fair, when a taxpayer is self-employed it can raise red flags. The best advice, if you are self-employed, is to keep track of all of your expenses and all documentation so you are able to defend all credits and deductions that you claim.

You Made A Lot More Money In 2013Major changes in this year’s income is a red flag for the IRS. It can mean that the taxpayer has under reported earnings in the prior year.

You Claimed Losses From One Of Your HobbiesIt is not legal to write hobbies off as business expenses. For example, if you make jewelry as a hobby, you cannot deduct material costs and tools. Now if you were selling the jewelry you made, it would be considered a business and you would be able to deduct those costs. Remember, a business is an endeavor you enter into and conduct with a reasonable expectation of making money.

You Were Exceedingly Charitable This YearThe IRS looks for taxpayers that have inflated donations to charitable organizations. They pay particular attention to people who have donated close to $500 because that is the limit that can be deducted without filing Form 8283.

You Have A Bank Account OverseasThis year, the IRS has additional requirements for taxpayers with banks accounts overseas. If you fail to report one of the requirements, it could be an audit trigger.

The Numbers On Your Forms Do Not Match – If you make a mistake with the numbers on your forms or the amounts do not add up, chances are the IRS will notice and will review your return carefully for any other discrepancies. Make sure you review your return carefully before filing.

Your Deductions Include Expensive Entertainment And Meal CostsThe IRS usually checks high business deductions to ensure the business expense is legitimate.

You Deducted High Home Office Expenses (Not The New Home Office Standard Deduction)When you itemize your home office expenses, the IRS will often review the tax return to make sure the expenses are really for business purposes. There is a new standard deduction for home office expenses that will not raise any red flags.

You should not worry as long as you know that you filled out your tax return properly. Just make sure that you keep good records of all the deductions and credits you take so you will be prepared if the IRS has any questions.

There Is Still Time To Cut Your Taxes!

Mar 17, 2014 Posted by Sanjiv No Comments

Even though the tax year is over, you still have opportunities to reduce your 2013 taxes.  Many strategies for tax planning need to be done by December 31st; however, there are others that you can still take advantage of before you file your taxes. The best thing you can do is do not leave any viable deductions on the table.

Maximize Contributions To Your IRA

Self-employed individuals and small business owners have until April 15th to contribute to their SEP IRA for the prior year. The limits are the lesser of 25% or $51,000 in 2013. If you get an extension, you will have until October 15th to fund your SEP IRA for the 2013 tax year.  The SEP IRA is much more flexible than a Roth IRA or a regular IRA because it gives you an opportunity to make a contribution when you receive higher profits later in the year.

The New Deduction For A Home Office

If you did not keep good records of your home office expenses in 2013, you do not have to scramble around looking for them with the new simple home office deduction. This deduction lets you take a $5.00 deduction per sq. ft. for the place in your home that you use for work. Many people do not claim any deductions for their home office because they feel it will trigger an audit. With the new standard home office deduction, anyone who uses a home office should claim it this year.

Look For Miscellaneous Tax Credits

Take time to go through your receipts to see if you have anything that qualifies for tax credits. Tax credits reduce your tax liability dollar for dollar. See if you bought anything that qualifies for the energy efficient tax credit. You will find a list on the IRS website of all eligible Energy Star appliances and electric and hybrid vehicles that qualify for a credit up to $7,500.

If you have children in college or are in college yourself, you could offset some of the expenses using the LLC (Lifetime Learning Credit) or the AOTC (American Opportunity Tax Credit).

Get Organized

Before you start preparing your tax return, make sure you organize all of your documents and receipts. This will help you identify any deductions you might not have thought of and will make sure your tax return is accurate.

Organizing your tax records and financial documents now will make the process of filing your taxes easier. Take a little time each day to go over your bank statements, credit card bills and charitable contributions you made in 2013 to make sure that nothing is overlooked.

Keep all of the 1099s and W-2s you receive in one secure location so they do not get misplaced forcing you to file a late tax return or an incomplete tax return

There is a lot you can still do between now and when taxes are due on April 15th to lower your tax liability. You can cut your taxes considerably by claiming all of the tax credits you are eligible for and making all prior year contributions.

Avoiding the Dirty Dozen Audit Red Flags

Feb 10, 2013 Posted by Sanjiv No Comments

The taxpayers are warned on manipulating any information related to the filing of their tax return deductions. This can let loose the ever inquisitive nature of the IRS and you can invite trouble upon yourself, which is best avoided at any cost. There are many factors that may flag your return for an audit and you should always consult with your tax professional to ensure that your return is in compliance with all applicable laws. In this article, I am going to point out twelve indicators / warning signals which in case exceed from what is believed to be normal, can trigger an inquiry from the IRS. The twelve ‘Red Flags” as they are addressed, are listed below.

  1. Filing higher income.
  2. Failing to report all taxable income as stated by the duplicate records available to the IRS.
  3. Filing for large charitable deduction, disproportionate to your known income.
  4. Filing for home office deduction.
  5. Filing for deduction on real estate rental losses.
  6. Filing for deduction on travel, business meals & entertainment.
  7. Filing the deduction for full (100 %) use of a vehicle.
  8. Filing the deduction on the losses related to a hobby activity.
  9. Filing a deduction for running a business on cash.
  10. Failing to report the account you hold in a foreign bank.
  11. You engage in transactions involving currency.
  12. Filing for deductions which exceed the average.

Availing of deductions sufficing the dictates of being reasonable can actually help you avoid unnecessary hassles, which would emanate out of a situation like facing the IRS audit. A part of the mentioned “hot spots” are clear manifestations of a planned deceit; the rest can be majorly attributed to ignorance on the taxpayer’s part on filing deductions. An experienced tax expert can help you remain on desired procedures along with putting up an effective representation for you in case required.

Handling the IRS audit on your own is not advisable: you wouldn’t have the expertise and skill required in handling the excruciatingly long & intimidating interrogation by the examiner. Rather the nervousness ensuing from the process holds the potential of you spilling off the restricted information to the auditor. This would worsen the matter further for you.

The bill raised by the examiner would be proportional to the information you give, as he digs for more.

Taxpayer has the legal right to representation. You can contact a seasoned tax expert to represent you at the IRS audits and aid you in resolving your tax issues forever. 

Deducting Rent Payments

Feb 3, 2013 Posted by Sanjiv No Comments

Keywords that should come to your mind is “reasonable in amount”.   If you are renting from your family or friends than you should ensure that rent is a reasonable amount.  This is very important but not as important if you don’t know the landlord at all.  What is a reasonable amount you may ask?  Reasonable amount is any amount that will be paid by an unrelated party.

Rent paid for property used for business are deductible.  This also includes any additional expense you may have on behalf of your landlord.  For example, you may deduct property taxes as part of your rent payments providing your lease terms require you to do so.

What if the property you are renting is owned by a corporation in which you are major share holder?

This is where rent expense can get tricky.  Once again number one rule is that Rent Amount should be reasonable, but you can not teat the rents as passive income that you could use to offset your losses from other passive activities. This kind of transaction is strictly prohibited by the law.

Rent with Option to Buy?

This kind of arrangements are great but sometimes it may not be clear if payments made are “Rent Payments” or “Down payment”  for the purchase of the car.  Make sure agreement clearly states what payments will be treated as rent and what will be considered as purchase or down payment.

Payments are not- deductible as rent if they are made under “conditional sales contract” which states that you will acquire the car after making the certain number of payments.

For example  You lease a car for a period of three years.  Your lease agreement provides that at the end of three years you have an option to buy the car and all payments made to date will be applied towards the purchase price.  In this kind of situation, your payments will mostly likely be considered as purchase rather than lease payments.

Can you deduct advance rent payments?

No – you can not.  You can only deduct the portion of the rent that applies to use of the rented property during the year.

Cost of cancelling the lease?

This is a deductible expense.

Improvement made to leased property?

Improvements you make to leased property ? This can be tricky calculation.  Please make sure to consult a professional.  You can deduct the improvements. However, improvements are depreciated over their recovery period defined by the law.  Please note that you can not depreciated over your term of the lease.

Renting a portion of your home for business?

You can deduct the rent expense as “home office deduction”.


Avoiding IRS Tax Audit This Year

Jan 15, 2013 Posted by Sanjiv No Comments

There are many things that seem to raise the red flag every time a tax return goes to the IRS. This article is going to point out some of the reasons behind an IRS audit. These points tend to increase the probability that you are going to get an audit from the IRS at one point in your life.

The first thing that should always put you on the look out is if you make a lot of money. Generally, people who earn a lot of money tend to underpay their taxes. The problem is that while people make money, they tend to spend it on many different things and forget that they are required to declare all sources of income and pay the taxes that arise from such incomes. This means that there is always the risk that such a person is underpaying his taxes or not paying some of them at all. This is a matter of concern for IRS.

There is also the risk that such a person fails to report all of the taxable income from 1099’s or W-2’s reported to the IRS. This failure may be intentional or just out of ignorance.

Another factor to look into is the charitable deductions that you make or receive. Giving back to charity and accepting charitable donations is one of the ways in which many people keep off paying taxes. However, there are some deductions that are tax exempt while others are taxable. There are many other types of deductions that you should also look out for the home office deductions that are claimable the rental losses that you make, business meals and travels as well as entertainment expenses.

One of the common mistakes that many people make is to write off the losses that have been acquired from a hobby activity among the business losses. In some cases, business persons who use their vehicles for business activities tend to claim 100% of the use of the vehicle on the business. Some of these things almost always tend to raise red flags all over the IRS servers.

Other things that may raise the IRS red flags include running a cash only business, failure to report the foreign bank accounts that individual holds and trade in currencies. Even then, whatever the reasons that you may have, it is important to avoid IRS audits. Overstating deductions and profits in most cases also attracts the IRS to your doorstep.

This is why it is important to use professionals in this field to cover the loopholes that you may have had. Professionals will also help you better organize your financial returns and reduce the possibility of raising the red flag at the IRS.

1099 Independent Contractor Tax Deduction

Oct 13, 2012 Posted by Sanjiv No Comments

Recently we got a question asking about the tax deduction for the 1099 contractor. Caller wanted to know if he can deduct the travel expense from his home to his office.

In San Francisco Bay Area, many of us are 1099 contractors, working for consulting companies or own our small business. With gas prices reaching $5 per gallon, it is no wonder that we are starting to pay special attention to the travel expenses.

 Small answer, like always, to this question is – Yes, but it depends.

You can deduct travel expense from your office to your client site. Meaning, if you have a home office and you travel from your home office to your work than that expense can be deducted.

However, if you simply travel from your home to your work than that expense is not tax deductible.

 Set Up A Home Office To Take Tax Deduction.

Your home office should be separate place in your home that is dedicated as your office. There is no special rule that define what furniture or equipment you need to buy to claim a place as your office. However, your office should serve as your “HOME OFFICE”. Meaning you should be able to do operational task from such place. Moreover, this office space should not be used for personal use. It should be dedicated forth office use only.

With increasing number of audits from the IRS, I suggest that you keep a picture of when your office was set up. Taking your home office pictures can also help strengthen your position in case of the audit. Making a list of things you do from your home office can also help you establish your home office.




Understanding Self Employment Tax

Aug 27, 2012 Posted by Sanjiv No Comments

The word tax never fails to not to scare us right? No matter however much money we are paying to the government as tax it seems that when ever it’s time to pay back to the government there is some shiver that goes down the spine. But much of the fear is allayed when the necessary taxes are deducted from the salary itself and you don’t have to bother much about paying them yourself. But when the case is otherwise and you have to yourself tell the government about your earnings and then pay the relevant taxes, it becomes a bit scary then. So definitely it not only sounds scary but quite draining as well.

How Does One Go About Paying The Self Employment Taxes?

If you are self employed and you do not draw monthly cheques under a company then you have to individually make arrangements for getting your taxes paid. This may sound tough but as you systematize and organize the important documents, the task of you paying your taxes is not that difficult anymore.  What is important is knowing when to pay them

If you are self employed then such taxes may be paid throughout the year. If you are making a good living out of your self employed incomes or earnings, which is again registered as your primary income then probably you have pay the scary taxes. Also you can only skip the quarterly taxes at the risk of paying heavy fines during tax paying time.

As a self employed individual one has to also pay social security and medicare to the government out of their incomes. The best thing to allay your self paying tax fears is to stash away those essential bucks to be used only during tax time.

Not all is bad for self employed persons!

Yes in such cases you may have to pay only half of the entire tax burden. Also you are liable to face deductions if you are using your home office, other business expenses or purchasing your own health insurance schemes. The only thing that ought to be kept in mind here is keeping all the papers ready for audit time.

If all the above is little complicated for you then you better consult an attorney to secure legal advice.

Top 3 Deductions for Self Employed | Infographics

Aug 5, 2012 Posted by Sanjiv No Comments

Self employed individuals can also take advantage of many tax breaks.  Here are the three most popular tax breaks that can help you reduce your tax bill.  Do you have health insurance ?  You can deduct the cost of your health insurance and of your family.  Do you have an office ?  You can deduct your office expense. Yes, it also includes your home office expenses.  If you are in business for yourself than you must be spending money on supplies.  Most supplies are also tax deductible.  However, there are many tax deductions that can also get you in trouble.  You must watch out for those kinds of tax deductions.
self employed tax deductions

July News Letter | Tax Tips

Jul 21, 2012 Posted by Sanjiv No Comments

Tax Tips From Sanjiv Gupta CPA

I am back from India.  It was a fun trip but as always it was short. It was great pleasure to see how fast India is growing. I spent most of the time in New Delhi and NCR area but I am sure rest of the India is also growing as fast as it can.  

How about your business?  I am trying to catch up on appointments but you can now call my office to schedule an appointment to take care of an urgent business.

Understand NRI/NRO Accounts
Picking the bank account for Indians living in United States can be little tricky. Various US and Indian laws can make one kind of account much more beneficial than the other.  Learn how to send money to India and how to bring the money back from India. 
Bank Accounts for NRI Explained By Sanjiv Gupta CPA
Bank Accounts for NRI Explained By Sanjiv Gupta CPA


A To Z of Home Deductions
If you have a home based business you can save money by availing home office tax deductions. The IRS allows you to save money on insurance, mortgage, repairs and other utilities, if you have an office at home. Home office deductions are applicable for all kind of homes irrespective of apartments, flats and even mobile homes. So if you are wondering how to claim a home deduction this article will provide you with all the basic information.          

Tax Rate For Year 2013


President Obama wants to keep the 10% to 28% tax rates with no change.  He also wants to bump the top two rates to 36% and 39.65.  At the same time, Republicans want to keep all the Bush Tax rates as is..
Call 510-825-7563 to make an appointment or visit us online at

Issue: 1
In This Issue
NRI/NRO Accounts
A to Z of Home Deductions
2013 Tax Brackets
Medical Deductions

Medical Deductions

A medical deduction plan helps to reduce tax on medical expenses.  This type of plan is beneficial for one who has to spend excessively for medical issues.  
Medical deduction plans allow a person to qualify for tax exemptions. However to file tax return on medical expenses it is essential for an individual to present all supporting medical documents.

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Red Flags | Invite For An Audit

Apr 18, 2012 Posted by Sanjiv 1 Comment

One of the common question asked by Tax Payers is “Can I get audited?” or “What can flag my tax return for an audit?”. These questions bug so many tax payers that we are often bombarded with same question via email and phone calls.

Good News | Less than two percent of taxpayers get audited a year. Your chances of getting audited increases with your income. How IRS selects tax returns for audit is “Top Secret” and I would assume that even the IRS employees don’t know the answer to that question. However, experts presume that it is combination of multiple factors that may prompt your tax return for audit. You will need to have multiple flags in order to get audited – but you never know.

1. Making Calculation/Math Error(s): “This is simplest but one of the common flag for an audit,” says Sanjiv Gupta, CPA. Most tax payers use computers these days and this reduces the risk of math error. However, software depends upon the data you enter. So if moved couple of zero’s here and there – you may be called for an audit. Sanjiv pointed out that common math errors typically time pressure. Folks trying to do their tax return at the minute are more prone to making a mistake.

2. Taking Abnormal deductions. How about $100,000 charitable donations from someone making $50,000 year – possible but outrageous. If something is out of ordinary, attach proof with your tax return.

3. Submitting inconsistent information. What happens if you report income of $25K but your employers reports $45K ? Audit, off course. Make sure information going to IRS from all places matches with numbers you put on your tax return. This is especially true if you were paid in cash or have any kind of reported income.

4. Making More Money. Yes – you have a better chance of getting audited if you make $200,000 or more. How much more you may ask ? Recent IRS data shows that audit of tax payers making $200,000 increased by 34& during 2010 tax year. Just imagine, how is it like if you are making over 1 Million dollars.

5. Filing a business return. Most businesses run into losses every now and then. However, if you show loss three out of five years than you are at higher risk of getting audited.

6. Taking home office deductions. This sounds like an easy deduction but big guys at IRS are looking out for home deductions.

7. Handwriting your return. Still filing paper tax return? It is a well known fact that hand written tax returns have more errors than the ones generated by computer. Guess what, IRS knows this too.