Tag: IRS penalties


Late penalty Relief for Unemployed and Self employed

Sanjiv Gupta CPA - 8 years ago
IRS announced a new relief program under its “Fresh Start” initiative.  Unemployed taxpayers and some qualified self-employed can take advantage of this relief program. (IR 2012-31).What Kind of Relief Can You Get and Who Qualifies?According to a recent post on the IRS website:  You can relief from the failure-to-pay penalty and is available to two taxpayer classes.  Please note it is subject to your AGI limits.Taxpayers who have been unemployed for any period of 30 consecutive days or longer at any time in 2011 (or in 2012 up to April 17); andSelf-employed individuals who experienced a reduction of 25% or greater in their business income in 2011 relative to 2010.What can you do to get this relief?File the return by April 17, 2012, or obtain an extension and file by October 15, 2012;File Form 1127-A by April 17, 2012, regardless of whether the return is extended; andPay taxes due by October 15, 2012.Does this cover all penalties and interest?No, You are still subject to other penalties and interest. Also note that the failure-to-file penalty will still be in effect, so taxpayers must timely file. We recommend you contact your tax professional in advance to make sure what kind of relief you can qualify for. As always, you should avoid having to deal with IRS penalties and interest.One more good news for those who do plan on paying taxes late this year?IRS has also introduced a new threshold for simple installment agreements from $25,000 to $50,000.  You can learn more about this program by visiting the IRS website.

Freelance? Get Ready For IRS Audit

Sanjiv Gupta CPA - 8 years ago
Do you make money freelancing or doing consulting work?  You need to be extra careful with your tax returns as there is a good chance that your return may be audited. So, get ready in advance and avoid future trouble.“It is no secret that freelancers and self-employed people get audited more often than others,” said Sanjiv Gupta CPA.   He further explained that with a huge IRS budget there are more free agents than ever, the I.R.S. wants to take a closer look at self-employed and freelance professional’s growing numbers and make sure they’re doing their taxes correctly.In recent years the number of people doing consulting and freelancing has increased mainly due to layoffs and hiring freeze.   Consulting is a great option for expert professionals but one needs to be careful when it comes down to filing taxes.Similarly, Small business owners are at risk of being audited.  According to recent surveys,  if you’re a sole proprietor, you’re almost three times as likely to get audited as a corporate filer.  This may be a good reason to incorporate your business.   According to IRS, auditing small businesses is not because they don’t like small mom and pop shops but its because they are more likely to find errors and omission in small business owner tax returns.Small business owners should consult with their Certified Public Accountant to make sure taxes are filed properly.  This will significantly reduce their chances of being audited.  At the very least, you will have peace of mind that there are no errors in your tax return.

Avoiding the Dirty Dozen Audit Red Flags

Sanjiv Gupta CPA - 7 years ago
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 what is believed to be normal, can trigger an inquiry from the IRS. The twelve ‘Red Flags” as they are addressed, are listed below.Filing higher income.Failing to report all taxable income as stated by the duplicate records available to the IRS.Filing for a large charitable deduction, disproportionate to your known income.Filing for home office deduction.Filing for a deduction on real estate rental losses.Filing for a deduction on travel, business meals & entertainment.Filing the deduction for full (100 %) use of a vehicle.Filing the deduction on the losses related to a hobby activity.Filing a deduction for running a business on cash.Failing to report the account you hold in a foreign bank.You engage in transactions involving currency.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. 

Million Dollar Homes and Tax Audits

Sanjiv Gupta CPA - 7 years ago
Do you own a home for which the mortgage is more than $ 1 Million?If yes then it is a wise idea to check how much mortgage interest you have been deducting from your tax returns over the past few years. All homeowners who owe more than a million dollars on their home loans have come under the scanner of the IRS. The scrutiny has been taken up over confusion on the mortgage interest that customers are eligible to deduct from their tax liability. Taxpayers who owe more than $ 1 million on their homes could range from tens to thousands. For a mortgage of $ 1 Million, the interest could add up to about $50,00o. This amount being substantial has been of great interest and a matter of concern to the IRS department.Tax rules vary for home acquisition debts and home equity debts. Let me describe each of these in detail. Home acquisition loans are availed to acquire, construct or renovate a qualified property. This kind of loan is secured by the home. In the case of Home Equity Debt, it is like any other loan and even here it is secured by the home.Now here comes the catch. While a section of taxpayers argues that it was legal to deduct all interest on a single mortgage of up to $1.1 million, others opposed the claim stating that the limit for mortgages was $1 million, but interest could also be deducted on an additional $100,000 in a home equity loan. In order to end this confusion IRS had set the record straight by stating that loans over and above $1 million could also qualify as home equity obligations.While the confusion over the interest deductible has been solved for the time being these rules could be very confusing to the common man who cannot afford to seek the opinion of a tax advisor. When customers avail of a home loan, it is not the loan alone but there are other surrounding components that get added to the loan. One of the important aspects of a home loan is the refinancing option. While IRS has not specified how such complex cases need to be dealt with, there have been a lot of homeowners who have been pulled up during mini-audits conducted by the IRS. In the past six months alone, IRS has notified a number of people that their mortgage interest write-offs are being scrutinized.As per the existing tax rules, tax deduction on mortgage interest is allowed on the first and second home but not on homes exceeding two in number. While the rules are clear cut and comprehensive in a lot of situations there are certain circumstances where the rules are not clear and exhaustive.Are you still confused about your tax liability even after reading this article? If yes, then it is advisable to get help from a qualified CPA in order to avoid complications at a later date during an IRS audit.

What Are The IRS Audit Penalties?

Sanjiv Gupta CPA - 6 years ago
If your tax return was selected to be reviewed by an audit, it does not mean that you will have higher tax liabilities or IRS penalties. Unfortunately, however, approximately 75% of those people audited have to pay more taxes. If something is discovered to be wrong on your tax return, the burden of proof will be yours for most provisions for penalties except fraud.An adverse decision could incur a wide variety of penalties. You could also have to pay more taxes if the report shows that your taxes were understated. Below are some penalty possibilities.Penalty Related To AccuracyIf your return is found to be inaccurate, you might be subject to a 20% penalty on the tax that was understated. Some tax inaccuracies could trigger a penalty of 40%.Penalty For Civil Fraud.If you have an adverse audit that resulted in civil fraud, the penalty is 75% of the tax that wasn’t paid and that attributed to the fraud. Some parts of the underpayment may be attributed to an accuracy-related issue and therefore would have a lower penalty on it. Any underpayments that are attributed to civil fraud can’t be stacked with penalties for accuracy-related issues.Failing To File Your Tax Return FraudulentlyThis is extremely rare; however, if an IRS audit can prove that you purposefully filed your taxes late and did not have an extension to avoid paying taxes, you will be subject to 15% each month for a total of 75% after being late five months. The normal penalty for being late is only 5% per month.Criminal PenaltiesThere are various criminal IRS charges that can be both felonies and misdemeanors. These criminal charges include evading taxes, filing a false tax return, willfully not paying estimated taxes or keeping proper records, or not filing a tax return at all. Civil penalties for fraud are much more likely than criminal penalties.Interest On PenaltiesWhen you are audited, you can receive penalties for accuracy-related issues, not filing your return on time or a penalty related to civil fraud. Interest will start accruing from the day that the tax return was due until all of the penalties are paid in full. With all other IRS penalties, the interest does not start accruing unless the penalties have not been paid within 21 days from when the Internal Revenue Service actually requested payment as long as the total penalty is under $100,000. If the total penalties are over $100,000, you have only 10 days to make the payment in full before the interest starts accruing.
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