Articles Posted in Tax Help

With the recent Equifax Credit Bureau identity theft event, and many prior episodes of personal identifying information being stolen (Yahoo, etc) that appears to happening all the time now, I thought an article would be helpful on how your tax returns are affected by such events, and concrete steps you can take to protect yourself (and your parents if they are elderly).

From my experience as a CPA and Tax Attorney, if you think you are completely protected from identity theft issues by hiring a credit monitoring company, you are partially incorrect. The value of these companies is that they alert you if someone has stolen your identity and used (or try to use) this information to obtain credit. The problem is that often that the notification of this is after the crime has occurred, and you still have to deal with the clean-up. You may be better off pulling your own credit report every four months (from the three free ones you get every year) and doing this work along with a credit monitoring company just to make sure its done correctly. This is also a good way to make sure that your credit information is generally correct, and you can dispute any incorrect items through the credit companies.

Tax-HelpFrom a tax perspective, the “bad guys” are using your social security number and other identifying information  to get tax refunds. They do this by filing false income tax returns with your information, and typically having the refund directly deposited into a foreign bank account they control. When this happens (per the IRS 14,000 times it was done in 2016), you typically only find out when you file your legitimate income tax return, and are told by the IRS that a tax return has already been filed, and a refund already issued. The IRS will not go after you for the false refund, but this creates a huge mess that you will be dealing with for 1-2 years. Well, the question is, how do you avoid such a mess? The IRS has a program where you can request a PIN that they would send you, and you would use when you file your income tax returns. The “bad guys” would not have this PIN, so they would be blocked from filing a false tax return. As with most IRS related matters it is not easy to get a PIN (hopefully this will change someday). To obtain a PIN, you need to file Form 14039 (Identity theft Affidavit) with the IRS, and request one. When you file this form, the IRS will also mark your account as having a higher risk of fraud, and keep an eye on it for you. In addition, you should also obtain and examine your IRS tax account transcripts and review the activity for filed tax returns and refunds. I would take this step every six months. Therefore, with the PIN filing method, and reviewing your account at the IRS twice a year, you should feel confident that you have this issue under control with them.

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As residents throughout New York State prepare to gather with family and friends next week for the Thanksgiving holiday, Jan. 1 and 2016 are just around the corner. Also not far off, or far enough for most people’s liking, is the dreaded April 15 tax filing deadline. For small business owners, there are important steps that should be taken today regarding end-of-the-year tax planning that can make the upcoming tax season much less stressful.

For any business owner, having an organized and partially automated process for keeping track of financial records is a must. Today’s marketplace is flooded with accounting and tax-preparation online software programs that make it much easier to organize and keep track of a business-related expenses, income and deductions. For a small business owner, not only is it important to use one of these programs, but it’s also wise to input related financial data on a regular and consistent basis.

In addition to ensuring that one’s financial records are organized and up-to-date, business owners are also advised to, based on a business’ financial situation, plan and save for expected tax liabilities. Doing so will ensure that a business is able to meet its tax obligations and can prevent a business from incurring fines and penalties imposed by the Internal Revenue Service.

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While there’s no way for an individual to completely avoid paying taxes, there are ways to cut and reduce the amount of taxes an individual owes. By being proactive and engaging in tax planning, an individual can often reduce his or her tax liabilities substantially. It’s important to note, however, that there are creative strategies that can be employed to reduce the amount of taxes one pays and then there are those that are questionable or outright illegal.

Simply failing to file and/or pay one’s taxes is never a good idea. Not only is an individual likely to accrue costly fees and penalties, but he or she may also face criminal charges related to tax evasion. Additionally, it’s never a good idea to file or submit tax-related documents that contain false or doctored figures. Again, an individual who under- reports the amount of income or overestimates deductions will incur costly fines and penalties and may face charges of tax fraud.

In cases where an individual learns that he or she is being investigated or audited by the Internal Revenue Service, it’s wise to contact an attorney. It’s especially important to retain a strong legal advocate and representative if an individual is concerned that an IRS audit or investigation may result in the discovery of questionable or illegal tax-avoidance activities.

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For many who reside in the state of New York, one of their biggest fears is to be audited by the Internal Revenue Service. People who are concerned about this occurring probably believe that three years after a return is filed, they are in the clear. While it is true the statute of limitations for tax returns is generally three years, under certain circumstances it is possible that period could extend to six years. In some cases it could go even longer.

The audit period could extend from three to six years in situations where in completing the tax return, the tax player substantially understated his or her income. But just what does that mean? This situation arises when the taxpayer fails to account for more than a quarter of his or her income. The statute of limitations will start to run on either the date the filing is due or the date in which it is filed—whichever is later.

The IRS could also extend the audit period to six years in situations where the taxpayer has omitted more than $5,000 in foreign income. This might arise in situations where the taxpayer has accrued this income as a result of interest on an account that is overseas.

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Denial, avoidance and procrastination are all activities in which an individual may engage when faced with something that he or she would rather not deal with or do. However, such coping tactics are almost always sure to backfire and make an unpleasant or difficult situation even worse. This is especially true in cases where an individual receives communication from the Internal Revenue Service.

Anyone who opens their mailbox and sees a letter from the IRS is likely to panic. Whether an individual chooses to throw the sealed envelope away or simply disregard its message, ignoring the IRS can end up costing an individual hundreds to thousands of dollars in fines and, in some cases, a whole lot more.

Annually, the IRS claims to send “millions of notices and letters to taxpayers for a variety of reasons,” some of which may be minor or even positive in nature. Even in cases where an individual knows that he or she failed to file or pay taxes or expects bad news, it’s important toopen an IRS letter or notice as soon as possible and to contact the agency with any questions. This is especially true in cases where an individual believes that the IRS erred and an individual plans to dispute the issue in question.

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Enacted in March of 2010, the Foreign Account Tax Compliance Act, or FATCA as it’s more commonly known, has been the subject of much concern and confusion for many U.S. citizens who are either living abroad or who have foreign-held assets or property. The unpopular piece of legislation was passed in an effort by the U.S. government to keep track of U.S. foreign asset holders and crackdown on offshore tax evasion activities.

FATCA’s provisions apply to U.S. citizens with foreign assets or property that is valued in excess of $50,000. While this requirement seems straight forward enough, many individuals who are subject to FATCA’s terms would likely argue that attempting to abide by the law’s provisions is anything but simple or straightforward.

Consequently, many people who should file under FATCA don’t and the penalties associated with failing to file can be hefty and punitive. In cases where an individual fails to report foreign assets under FATCA requirements and wants to ensure they are compliant with the Internal Revenue Service requirements, the agency offers options—one being participation in theOffshore Voluntary Disclosure Program.

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Now is the time of year when taxpayers begin getting those dreaded letters from the IRS saying that they didn’t pay the taxes that they owed. In some cases, people might be expecting the letters, knowing that they didn’t pay their taxes in full.

But in other cases, people might believe that the letter was sent in error. In this case, the good news is that there are steps that can be taken in order to figure out if the IRS has made a mistake. Believe it or not, the IRS has been known to get it wrong from time to time.

Here is what you should do if you think that the IRS is after you for money you don’t owe:

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Thanks to budget cuts the IRS is warning that many taxpayers will not get the assistance they need this tax season.

It is expected that only about half of the people who call the IRS for assistance this year will be connected with a live person, and those callers who do get through could be put on hold for 30 minutes or more even to get answers to simplest of questions.

The National Taxpayer Advocate, who is an independent IRS watchdog, said taxpayers might not only find the lack of support annoying, it could also make it difficult for them to comply with the law.

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If you know you won’t be able to afford to pay the income taxes you owe in full this year, you might be starting to panic as tax season approaches.

As we all know, failing to pay taxes can result in significant fines as well as criminal charges, so it’s smart to get a plan in place now. The good news is that there are options available for people in your situation.

These options from the IRS help you to avoid the interest and penalties that are normally associated with failing to pay the taxes you owe. They include:

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If you owe the IRS back taxes, chances are that you are feeling scared and powerless. But the good news is that even if you are partially in the wrong, you still have rights thanks to The IRS Restructuring and Reform Bill of 1998 and the more recently adopted Taxpayer Bill of Rights.

Under these policies, the IRS has to fully communicate with taxpayers and afford them “due process” rights before pulling one of the many levers it has to make a taxpayer’s life miserable. Understanding your rights can make all of the difference when dealing with the IRS and back taxes.

Your right to be informed. The IRS has a duty to explain exactly what you need to do in order to comply with the tax laws. You also have a right to have all decisions made about your tax account explained to you in terms that you understand. However, you can’t just ignore the IRS’s attempts to inform you.

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