Tax Investigation: What You Need To Know

Finding out that you’re going to have a tax investigation can come as a shock, especially if you weren’t aware that you’d done anything wrong. In fact, as some investigations are carried out at random you may not have done anything wrong at all.

If you’ve never been involved in a tax investigation before it can be daunting trying to understand the jargon, getting to grips with the HRMC investigation process, and just keeping calm and staying cooperative.

Here is a brief rundown of everything you need to know about a tax investigation so you know what to expect when Mr Taxman comes knocking.

Why am I being investigated?

As we explained in the introduction as many as 3% of investigations are carried out at random, so don’t automatically assume you’ve done something wrong if you get investigated.

Other reasons for the taxman visiting are: running a business in a high risk sector, HRMC being tipped off, poor record keeping, unusual information on the database, unexplained fluctuations in your account, using round numbers in every box on your tax return, or more complex issues such as non-domicile status.

What happens if I am chosen?

Tax inspectors choose their own cases and after you have been chosen your account will be looked at so that the inspector can gain further clues to your tax activity.

The taxpayer is reviewed in depth and then is assessed on their chance of becoming a ‘good result’ for the inspector. You will then be sent a letter informing you of the investigation and requesting all your business records for the previous 12 months.

This is the time to get independent, professional financial advice. Don’t trust what your mates down the pub or at golf tell you about the taxman!

What next?

After receiving the letter and providing your records the inspector will review them and then request an interview with you. Be prepared for this to take anywhere between two and four hours and to find the process very stressful.

You will be asked questions about your records and your business to highlight any issues the inspector may have and to confirm they correctly understand your records.

It didn’t go well. What now?

If unfortunately things don’t go well and errors are found in your records then your inspector will calculate the ‘uplift’ and add it to your account.

The inspector may also consider your records for other years and any interest or penalties you may have. This is where tax investigations become very expensive, not to mention stressful, for you and your business.

What about IR35 investigations?

An inspector will use your invoices to establish how many clients you have. If it is between one and two then this may lead to an IR35 investigation.

They might discuss their findings with Revenue auditors to decide whether to undertake an investigation of your main client in order to discover other clients, or ‘disguised employees’, that you haven’t declared.

Author: By Harry Price; Harry Price writes on all aspects of modern day life and the trials of dealing with the Tax man.

Tax Deductions You May Not Know About

When tax returns come due every April 15th, everybody is looking to maximize their tax benefits. Getting the largest return when you file taxes is truly not about your skills, but rather how much you know about the tax system. It is all too common that many taxpayers either overlook or miss out on various credits and deductions they are unaware of. The most frequently missed deductions relate to health care expenses, insurance premiums, and interest rates on loans. This article will discuss a few types of deductions that could save you some serious cash on your next tax returns.

Disability Insurance Premiums

This insurance is quite possibly the most overlooked premium which qualifies as a tax deduction. It is important to remember that these premiums will always be tax deductible as a business expense for self-employed, taxpaying citizens. Just remember that if you deduct the premium on your tax return, any benefits which are paid on the policy will count as taxable income. Conversely, if you do not deduct your premium, then the policy benefits will not be taxable; this allows taxpayers to receive tax-free benefits should they become disabled.

Life Insurance Premiums

Your premiums for life insurance are another frequently missed deduction. Your premium is deductible since it qualifies as a business-related expense. Death benefits paid to business-related beneficiaries are usually tax-free, but there are situations in which this benefit is taxable if it is corporate-owned. For individual policy holders, the death benefit is usually tax-free as well. Most premiums are also eligible as a deduction for most non-qualified plans which include executive bonuses and deferred compensation.

Medical Expenses

If your medical expenses exceed 7.5% of your adjusted gross income, they are considered a deductible expense. The vast majority of taxpayers never accrue enough unreimbursed medical bills within a single year to qualify for the deduction. However, there are ways to boost your deduction if you have a substantial amount of pending bills. It is possible to schedule other medical expenses or procedures within the same fiscal year to breach the limit for the deduction. The total amount of expenditures which qualify for this deduction include operations not covered by your insurance and any other types of unreimbursed expenses you accumulated within the same year. These expenses may include routine checkups, chiropractic treatments, dental procedures, vision correction, and prescription drugs.

This can be a crucial deduction, but you should not declare this specific deduction if there is the possibility that your insurance company may reimburse you. If you receive an insurance check in the following year for reimbursement, you will need to claim the total amount of the reimbursement as income on your next tax return.

Student Loans

Many graduates struggle to pay off their massive loans once they enter the professional world, but this may actually qualify as a tax write-off. You can deduct up to $2,500 per year for the interest on your student loans, even if your deductions are not itemized. It is important to note that this deduction does have income limitations. Another added bonus for those who paid extra money on their student loans to reduce their principle amount can deduct the interest of voluntary payments.

Taxes for a New Vehicle

At the end of 2012, there was a revival of the deductions for state sales tax. This write-off allows taxpayers to choose between a deduction for either the state sales taxes or income taxes. If you live in a state with no income tax, this is an easy decision; however, if you live in one of the high-tax states it could save you a significant chunk of change if you made a large purchase, such as a new vehicle.

Check with a tax attorney if you have any questions about tax deductions.

Author: Written by Randy Otis of Levy Tax Help.

The Best Ways to Screw Up Your Taxes

The United States tax code is not exactly known for simplicity, and many people struggle with knowing how to file their returns successfully.  The problem is that a mistake on your taxes could end up costing you money.  For example, if you underpay your tax bill and the IRS discovers your error (and there’s a good chance they will), then you could find yourself facing late fees, penalties and interest on the money you didn’t pay.  Not only that, but if you fail to take the deductions that you are owed and you overpay your taxes, the IRS isn’t exactly going to send you a nice check with a note that you forgot to claim a credit you were entitled to.

Think they aren’t out to make as much money off of you as possible? Think again.

Image: cc licensed ( BY ) flickr photo shared by Tax Credits

Because there are such high stakes when it comes to income taxes, paying your taxes is something you definitely don’t want to screw up.  Of course, there are always those people who like a challenge and who just don’t mind a little bit of excitement in their lives. Just in case you like tangling with government agencies, paying late fees and fines and ending up in a maze of audit requests, here are a few top mistakes that you can make that are sure to earn ire from the IRS.

Mistakes to Avoid on Your Taxes

Okay, in all seriousness, no one wants to feel the wrath of the IRS. That being said, make sure you avoid making these mistakes in order to fly in under the radar.

  1. Skip the tax preparation software: Tax prep software like TurboTax is easy-to-use and makes paying taxes simple so you get all of your deductions and pay the appropriate amount.  TurboTax even has experts available to answer your tax questions and to help you ensure that you can get the information you need to complete your tax return successfully. Since TurboTax makes it so hard for you to fail, you should definitely skip using this program or other tax software to do your taxes.  Instead, try to figure everything out using forms, pencil and paper and your memory of what deductions you might be eligible for. That is sure to go well for you. Just kidding—e-file to make your life easier!
  2. Wait until the very last possible second to start your taxes: This way, if something is wrong or if you are missing documents and paperwork, you can have the joy of scrambling at the last minute in order to meet your deadline.  US News identifies waiting to file as one of the Top 10 Common Tax Mistakes that people make, but who doesn’t love trying to get to the post office and get the taxes mailed at the very last second? Not only that, but if you are due a refund on your taxes, then you can delay getting your money from the government. Giving Uncle Sam an interest free loan is a really great way to keep your own money out of your pocket for just a little bit longer.   Not like you need that money to pay debts down, pay bills or bulk up your savings anyway…
  3. Leave off a few sources of income.  Failing to include all of your sources of income is number two on the Investopedia list of common tax mistakes.   When you leave off sources of income, the IRS is sure to find out about them anyway since the person or company who paid you will probably send a tax form to the IRS indicating that the payment has been made (you’ll get the form too). The IRS matches up the 1099s and other reports of income that come in and if you are missing some income, you get the added fun of getting noticed by the IRS for the discrepancy and potentially getting to pay late fees on top of paying your taxes.
  4. Be careless when completing the forms.  Surely, it doesn’t really matter if you write the wrong social security number on your income tax documents, if you don’t include the social security numbers of your spouse or kids or if you check single when you really are married—right?  The forms are only used to calculate your tax burden and make sure that the money and return goes to the right person… that’s probably not important as long as you send the forms in anyway!

These are definitely the best ways to make big mistakes with your income taxes. Now, it is up to you if you want to make these errors or if you want to do the smart thing and get your taxes filed on time and correctly so you don’t get the IRS after you.

Don’t be a dummy. Make a few wise choices, stay out of tax trouble, and enjoy a nice return. You deserve it.

About the author: Margaret Jackson is a full-time business/tax writer for a variety of publications. Prior to taking up the pen as her primary means of income, she worked as an internal auditor for a major corporation, which could explain her dry sense of humor. Now, she takes what she learned along the way to try and help people just like you.

The IR35 Calculator

IR35 is a section of tax legislation that was announced in 1999 and took full effect in April 2000. The legislation means that the revenue can tax some contractors as though they are employees of their clients. In turn this means that contractors caught by IR35 pay considerably more tax dropping their take home pay by as much as 25% although to work this out accurately one would need an IR35 calculator; many examples of which can be found online at the official HM revenue & customs site.

The government introduced the IR35, and thus the need for IR35 calculators, in order to deal with tax and National Insurance avoidance schemes through the use of intermediaries, such as Partnerships or Personal Services Companies. The Revenue’s observation was that a great number of IT Consultants, Engineers, non-executive directors and “one man band companies” were frequently regarded as self-employed when actually they should have been treated as employees of the end Client. This was based on the terms and conditions that the Contractors worked under. The Revenue disputed that if the agency or the PSC were separated, a large number of contractors would actually be “disguised employees” who ought to be included on the client payroll and have tax and NIC deducted each month

Not all contractors are actually covered by the IR35. In fact it is estimated that about 20 percent are definitely caught by it, 20 percent are definitely not part of it and the other 60 percent fall into a nebulous area that is neither black or white. If you do fall into the area then it is well worth checking out an IR35 calculator to see how much you could be saving.

A contractor caught by IR35 will usually collect 20% less in their pay packet every month as opposed to a contractor who falls outside IR35. For a contractor on £40 per hour this equates to around £800 per month. So take a look at a IR35 calculator; it could save you a lot of money.

Choosing The Best Tax Attorney

When a client requirements advise on setting up a commercial establishment or when he desires enable in processing of company papers and requirements, a enterprise tax legal professional can give him the help that he wants. The company tax attorney is an individual who’s authorized to represent someone from the company on matters pertaining but not limited to tax preparation, tax filing, tax negotiations or any other IRS matters concerning the company.

You might want to do some detailed social security number search on your attorney before you hire him.

Authorizing a business tax attorney to handle complicated tax problems will save you time as they have studied the tax laws and are more well-informed and updated than you when it comes to tax matters in your area. Other than that, the business enterprise tax lawyer will also be able to give advise when it comes to worker issues and other matters of business.

 

Since they are practicing lawyers, he needs to be recognized by the government for his position so once you pick a person to take care of your taxes, you really should hire a person that has the knowledge, experience and a single who is committed to complete the job for the firm.

 

It’s very best to retain a person in your establishment and keep away from switching from one tax attorney to an additional unless you have adequate reasons to do so. Retaining a person would be good to stay away from the burden of starting over. Acquiring an legal professional as retainer on your business is an advantage since you’ll be able to ask for his assistance anytime although not having to pay after each and every move. Whenever you get a separate lawyer each time, attorney’s fees alone will damage your finances.

 

When choosing a lawyer on your company, you really should be aware that a good tax lawyer must be blunt in his dealings with the client. He really should be professional like coming to meetings on time and not letting everyone wait. He should be honest with his clients and usually be transparent on the details of all his transactions involving the organization. He should possess the gift of gab or know-how to be in a position to effectively deal with all IRS negotiations and assist to bring down the penalties and charges that the IRS normally imposes on taxpayers who do not pay on time and who have liabilities because of undeclared assets or understated income. Lastly, they have to constantly be accessible for the business whenever needed.

Things You Should Know About IRS Mileage

The IRS mileage rate as of January 2009 can be used to determine how much you should be allowed to claim as a deductible expense for operating a car or vehicle for business use, for medical use or for moving purposes.

Effectively this means that the IRS mileage rate for driving a vehicle for business purposes is now calculated at 55 cents per mile driven.

Somehow, this amount drops to 24 cents/mile driven for any medical purposes. You may claim deduction of 14 cents per mile driven in the service of any charity.

With the cost of fuel slowly creeping up again, making the most of claiming for deductible expenses for vehicle use means the IRS mileage rate could prove very convenient for many people.

You should keep in mind that there are 2 ways to count deductible car costs when you’re counting your very own deductible expenses and factoring in the IRS mileage rate throughout the tax year.

The primary is the IRS mileage rate which by far the easiest method. The total of fifty-five cents per mile driven for business purpose was determined by basing estimates of the flat as well as various costs of running a vehicle.

For the vast majority of people using the IRS mileage rate can help to reduce your tax liability and increase the amount you’re potentially likely to claim in deductions.

Somehow another option for many business people is to evaluate the actual expenses to operate a car the whole year. It means keeping an exact log book to note the whole miles driven. It also means keeping your maintenance costs or fuel and servicing. Along with any routine maintenance or repairs that may arise thru the year, so that insurance costs and registration should be included.

Many people prefer to use the calculation for the IRS mileage rate since it can be burdensome on the paperwork side by recording so many costs throughout the year. You may find that your deductions outweight the amount handed automatically by the IRS mileage rate if you are willing to put up a little discomfort of keeping receipts that real costs.

A good way whether you must use the IRS mileage rate or the real cost basis is to either talk to your accountant or try to keep a running fee of your all expenses for 3 months and multiply that amount by 4 to give you an estimate of how much you will be able to claim thru the year. If you’re unsure of which way to proceed, call the IRS and they’ll be able to assist you with any questions.

The Importance Of Tax Help Relief

Are you aware that the federal government allows a tax debt relief program wherein there are provisions for installment accords, penalty abatement, offer-in-compromise and others? In other words, if one owes IRS money in the form of ‘Tax’ and is unable to pay the same, government provides compassionate grounds so that the person can redeem the debt over a period of time as per his/her convenience. This is one important reason why you must never neglect your tax problems because if you keep neglecting them, the problems would just become worse. With some tax help, you will be able to know what your options are and then seek the solution that is best for you.

If you have been filing your returns regularly, you can even enter into a negotiation with the IRS for some tax help. However in most cases there is a fear among people in dealing with the IRS because they think that they will make a statement that can go against them. Nevertheless, one must pass the “Eligibility” criteria that are detailed below to avail of tax relief facilities.

Eligibility criteria for the American Tax Relief Program

? It is more important that you have filed your tax returns than the fact that you might owe money to the IRS.
? It is important that you have disclosed all your assets that also includes back accounts and cash.
? For eligibility, the IRS will also need to ensure that there is no money in your savings, checking, money market or your brokerage account that can be used to pay the IRS.
? You must also be completely incapable of borrowing money from any secondary source such as a second mortgage on the home to pay back the IRS.

If you are eligible on the above mentioned criteria’s, then the IRS will allow you to repay the tax amount due in a manner that is convenient to you. Here are some areas in which tax help can benefit you.

• To be eligible for relief you must be unable to make a complete payment in all the ways.
• You must know that it is more dangerous to file a late tax return rather than not making the complete payment.
• The money you owe may be more than just the tax as there can be interests, late penalties, fees and fines too.
• Your penalty may be abetted if it is proved that you are very sincere about making the payment that is due.
• You might also enter an installment payment agreement through negotiation but firstly, you must qualify. A tax specialist can also help negotiate and get a good deal.

Your tax problems can thus be overcome in many ways with some qualified tax help.

Efficient Tax Filing Procedure and Health Insurance

Apart from the other entire phobia’s that one might have there is one which has a very fair possibility of being seen on about everyone’s list of scares. This is the tax filing fright! It is not the incident which causes the panic but it rather the whole process involved to carry out the task which makes it all the more complicated and hence fearful. The large number of different forms associated with the process of tax filing can make anyone feel uncomfortable and on overseas country. So what does one do in such situations?

The most excellent thing out is to get in touch with the Irs Tax department. The IRS tax information department has a helpline number where you can call and ask them your queries. The IRS tax information department has expert tax consultants who can help you with the whole ] procedure . The other way out is that you log onto the IRS website and fill out the Online Tax Forms. The IRS website has a list of all these online tax forms which will make the whole process of filing your tax returns easy as well as efficient .

If you come across any difficulty while filing these tax online tax forms then you can under go the information listed on the website or get in touch with the IRS tax information department. If your profit is not too high, you can file your federal taxes online at no cost. However, most of the free online tax preparation services do charge a minimum fee for preparing your state taxes. Write down the answers you get for each of your questions. Carry your list with you to your tax preparer, or have it realistic as you are using your tax software. So it is wise to do a little research by your self to be sure you have all the required information before you begin . If you are using tax software, give the IRS tax information 800 staff another call for explanation .

The other most common issue with most people is the task of choosing a good and an efficient Health Insurance cover. With large number of health insurance offers flooding the market it is very easy for you to get mystified and irritated. If you are taking the services of one company for long then you ought to wait for some discounts to come your way on your following renewal of your health insurance policy with them. The internet is loaded with several websites which have all the information on various providers giving health insurance covers. These websites let you to evaluate various health insurance covers and then to subsequently choose what is best for them.

Standard Income Tax Deductions That Decrease Your Tax and Save You More Money

Many tax payers elect to file the 1040EZ form because it is easier, but they are missing out on standard income tax deductions that can give them a much larger income tax return. Read on to see what the usual income tax deductions are and see if you are claiming all of them. When you are ready to file your taxes, check out the link at the bottom to see how you can get your taxes filed for free.

Wave goodbye to Income Tax Day
Image by Brent and MariLynn via Flickr

If you decide to skip all the standard income tax deductions and file a 1040EZ tax return, you will be given a standard deduction based on your filing status. This is the amount that gets deducted from your income before determining how much tax you should have paid. Without a lot of deductions like charitable contributions or mortgage interest, this is probably the way to go, but if you have deductions, you could be costing yourself tons of money.

There are tons of standard income tax deductions you can claim, especially if you have a small business, but following are the deductions most people can take. A deduction for each member of your household is one of the first things you deduct. For each person you get to deduct a certain amount from your income. The next deduction most people can take is mortgage interest. If you own your own home, the amount of money you pay every month on interest can be deducted from your income. If you donate to charity, and most people do, you can deduct this as well. That means that all the money you donate to your church every Sunday reduces the amount of taxes you have to pay. Student loans are another common source of income tax deductions. You are allowed to deduct the interest portion of your student loans. Other deductions that are less common include medical expenses and expenses related to child care, but you should really consult a tax professional if you plan to go beyond the usual deductions.

Hopefully this quick list of income tax deductions will help you identify all the things you can deduct from your income to reduce the amount of money you owe the government.

For the record, I am not a tax professional. I have been doing my own taxes by myself or with the help of a tax professional for 20 years so I know a few things, but I cannot offer you legal advice.

I recommend income tax software because it is very good at reminding you of things that you can legally deduct, but won’t let you accidentally do things that will get you in trouble. If you have a complex return, you really should seek a tax professional as spending a little extra money is better than big fines if you get audited.

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World of Finance – Tax Returns

Everyone who gets a migraine filling out their Federal tax return, raise your hand!

Did you know that all of the rules and regulations pertaining to the IRS tax return fills sixty feet of book shelf space? Yes indeed. This gives us an immediate clue as to why filing a Federal tax return isn’t simple. Tax preparation software is supposed to solve this problem, but it’s not foolproof. Should you misinterpret a question and supply the wrong answer, you’ll hear about it from the IRS just when you’re expecting that envelope to contain your refund or stimulus check. This can be an infuriating, not to mention disappointing experience.

The Internal Revenue Service
Image by Martin Haesemeyer via Flickr

Many years ago, former Governor Jerry Brown made a bid for the Presidency. One of his innovative ideas was to make tax filing easy, using a straight percentage of 10% of your income, no matter who you were, regardless of income level. This sounded like a great idea, but it never materialized.

Having years of experience working as an accountant, you’d think I’d have no trouble wading through the infamous 1040 tax booklet. Although the IRS provides an estimated time required to prepare each section, they must be dreaming or their estimate assumes you’re using software. Perhaps I’m just too careful. There are just too many potential pitfalls, so I read the booklet, usually three times, so that when my Federal tax filing is sent off, I believe with all my heart it’s right. It’s funny that that old adage, ‘close enough for government work’ does not apply to your Federal tax return.

The reason I read the booklet instead of relying on software, is that any little detail can blow the whole effort. It’s always best to be careful, right? Well, one serious flaw in the booklet is that it’s not written in plain English. It’s riddled with IRS jargon, double negatives and the like. It’s also not presented sequentially, probably due to that sixty feet of shelf space. You’re shuttled from one worksheet to another and then back to where you started. By the time you’ve made all the calculations, your head is throbbing and you have no idea what the figure on that line of the Federal tax return represents! It’s unwise to decide you need a break, because by the time you come back to it, you no longer know what the heck they’re talking about. Wasn’t it Charlie Brown who famously uttered, “Aaaaargh!”

Death and taxes. Both are unavoidable. However, wouldn’t it be nice if our government decided to take pity on us poor taxpayers and deliver a booklet in plain English and an abbreviated form. Here’s your income line, next your deduction amount and a straight percentage rate of tax. This is my idea of a dream Federal tax return. How about you? Maybe if our Congressional and Senatorial representatives were deluged with taxpayer requests for a kinder, gentler taxation system, they’d listen. We can only hope.

For more tax related questions please visit : World of Finance

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