Category: Income Tax Articles

Here comes the 80 Billion Dollars

Funding provided by the Inflation Reduction of 2022 has made it possible for the IRS to start cases on people they believe owe them a ton of money. Remember the cable news hosts losing their minds over the prospect of 87,000 new IRS agents? Well, the IRS has finally gotten around to deploying their 80 billion dollars in new funds and hiring and training up to 87,000 new employees.

They used their newly found resources to start cases. By the way, the word “cases” is what caught my attention and should catch yours too.  It is another way of saying the IRS has identified procrastinators who have not filed their returns since 2017.

If you receive a CP59 letter from the IRS call us immediately (835) 222-6600, this means that the IRS already has established a case on you.  The worst possible thing for you to do now, is ignore the notice. 

Some ask, “what happens if I do not respond?”

The answer is that the IRS will continue its enforcement action against you, including filing a Substitute for Return (SFR). These “substitute” returns are prepared and filed by IRS personnel in a vacuum and often do not give people like you, the deductions and credits that are rightfully theirs. Often, these SFRs show a higher balance due to the IRS then if you had a competent professional tax preparer to prepare and file your return.

From that point the IRS will take the SFR and assess the unpaid taxes, create an IRS lien and pursue collections procedures which may include the legal seizure of your property to satisfy the tax debt. Without going to court, the IRS can garnish wages, take money in your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property.

Remember, the IRS is the most brutal collection agency in the world.

“Collections” sounds agonizing and awful, and it is.  But you do not have to go it alone. We are here to help you through this process.  And once you have retained us, we manage the correspondence with the IRS, and in most instances, you will not have to talk to the IRS in person or by phone. 

What about you?

And the good news for you is that there are many programs enacted by Congress that are there to help you.  Including but not limited to Offers in Compromise, full and partial pay installment agreements, Innocent Spouse relief and more.

Facing an IRS audit is a daunting experience. The idea of having your financial records scrutinized by the most feared collection agency, the IRS, can shake anyone to their core. The cost in both time and money can seem never-ending.

Understanding the top reasons taxpayers get audited by the IRS can help you avoid common pitfalls and navigate the audit process more confidently.

In this article, we’ll shed light on these audit triggers, offering you insights into what may prompt the IRS to take a closer look at your tax return.

Additionally, we’ll cover how a tax relief professional like E Ten Broeck, LLC can provide assistance should you ever find yourself facing an IRS audit.

1. Math Errors and Discrepancies

Mathematical errors or discrepancies on your tax return are a prime reason for IRS audits. Common mistakes include errors in addition, subtraction, or basic mathematical operations. While these errors may be unintentional, they can still trigger the IRS to take a second look

2. Large Discrepancies Between Reported Income

The IRS receives copies of the income you report through information returns like W-2s and 1099s. When these documents show significant disparities from the income you’ve reported on your tax return, it raises concerns.

For example, if someone you did work for reports a different income figure on a 1099 than what you reported, it may trigger an audit. Accurate reporting and proper documentation are essential to avoid this issue.

3. High Deductions and Credits

Claiming excessive deductions or tax credits compared to your income level or industry norms can invite IRS scrutiny. While deductions and credits are valuable tools to reduce your tax liability, they must be justified and supported by appropriate documentation.

For instance, inflating charitable contributions or business expenses can lead to audits. Taxpayers should exercise caution, ensuring their claims align with tax regulations and that they maintain comprehensive records.

4. Failure to Report Income

Failure to report income, whether intentional or accidental, is a significant audit trigger. This includes income from freelance work, rental properties, interest, dividends, or offshore accounts. Accurate and comprehensive income reporting is crucial to prevent tax audits and legal complications.

5. Self-Employment and Business Activities

Self-employed individuals and small business owners face higher audit risks due to the complexity of their tax returns. The IRS closely scrutinizes business deductions, income sources, and compliance with tax laws.

Common audit triggers in this category include claiming excessive business expenses, misclassifying workers as independent contractors, or underreporting self-employment income.

Taxpayers in these categories should maintain accurate records and seek professional guidance to ensure compliance.

6. Inconsistent Filing History

Frequent amendments or inconsistencies in your filing history may prompt IRS scrutiny. While it’s perfectly acceptable to amend a tax return to correct genuine errors or provide additional information, excessive amendments or inconsistencies can raise suspicion.

Maintaining consistent and accurate filing practices helps reduce the likelihood of audits based on your filing history.

7. High-Income Individuals

High-income individuals often face increased audit risks due to the potential for larger tax liabilities. The IRS verifies that high earners accurately report their income, deductions, and credits. While high-income individuals have legitimate opportunities for deductions and credits, their returns undergo more thorough examination.

Already Audited? Do This Next

What if you’re already in an audit? The first thing you need to do is call a firm like ours that specializes in complicated tax problems like this.

Should you ever face an IRS audit, remember that E Ten Broeck. LLC is available to provide expert assistance, ensuring that you navigate the audit process with ease and confidence.

If you’re currently dealing with IRS problems and owe $10,000 or more in back taxes or are being audited, reach out to our tax resolution firm, and we’ll schedule a free and confidential consultation to explain your options thoroughly and help you permanently resolve your tax problem. Please call Eric at (835) 222-6600.

If you itemize your deductions, the aggregate amount of SALT State and Local Taxes shall not Exceed $10,000.

SALT TAXES ARE: State and Local Taxes are Real Estate Taxes, State and Local Income Taxes, State and Local Personal Property taxes.

Based on our experience from the 2021 tax season (2020 Form 1040), the $10,000 SALT limitation forced many taxpayers to use the Standard Deduction.

For your 2021 Form 1040 The Standard Deductions per the IRC are:

E Ten Broeck SALT predictions:

Due to the fact that taxpayers who used to itemize are now forced into the Standard Deduction, I have the following predictions:

• Charitable deduction: There will be a decline in charitable giving. Tax savings motivate charitable giving.
• Mortgage Interest Deduction: There will be a decline in Home Ownership, more taxpayers will consider renting verses owning a home. Same applies to Real Estate Taxes. Tax favored deductions like mortgage interest and real estate taxes encourages home ownership.
• SALT Taxes: Taxpayers will consider moving to states that offer lower lower real estate and income taxes. In other words, did you see the exit New Jersey for good sign, last time you drove the New Jersey Turnpike?
• Employee Business Expense Deduction: Employees with high out-of-pocket expenses will form LLC’s. Self employed people will move these business expenses to Schedule C.
• Investment Interest Deduction: Investors will seek lower fees, and/or use discount brokers.

Thanks for reading this post. Lastly, send me your thoughts and comments at: eric@etenentrepreneur.info