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IRS Audits

More on Retention of Records

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For those who want to be extra cautious about retaining financial records, here are specific reasons why you should keep your actual tax returns even if the statute of limitations has expired. And what exactly are the statutes of limitations which are relevant?

Tax Records

Supporting documents, such as 1099’s, W-2’s, receipts for charitable contributions, etc. should be kept for 3 years after the return was filed or the due date, whichever is later. For example, the documents for your 2011 return filed March 1, 2012 should be retained until April 15, 2015. Note that if your 1099 is attached to a brokerage statement that shows evidence of the purchase cost of a financial asset it’s critical to hold onto the statement until you dispose of that asset.

As for the tax returns themselves, it’s a good idea to save them forever. They may be needed for Medicaid, immigration, pension, divorce and other purposes. They may also contain useful data in filing future returns.  At a minimum we recommend retaining them for 10 years.  Certain items on a tax return affect later years and need to be kept until the statutes of those later years’ tax returns expire. For example: [Read more…] about More on Retention of Records

Cancellation of Debt Income- Adding Insult to Injury

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Your rental property went down in value so much that it was worth less than your $500,000 mortgage, so you walked away from the property. Let the bank enjoy it!

You pat yourself on the back for your clever move until the following January. January is 1099 time and you get a 1099-C from the bank stating you have $500,000 of cancellation of debt (COD) income

Your cronies at the club tell you that you have to pay US and NJ income tax on the $500,000 at ordinary income tax rates, not the favorable capital gains rates. You calculate that your brilliant move will cost you $200,000.

HELP! [Read more…] about Cancellation of Debt Income- Adding Insult to Injury

New Additions to IRS “Fresh Start” Program

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The IRS “Fresh Start” initiative was introduced last year as a response to the inability of struggling taxpayers to pay their taxes. In 2012, the IRS is significantly expanding the program with two major additions.

First, there will be a new “failure-to-pay penalty relief” for two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year
  • Self-employed individuals who experienced a 25 percent or greater reduction of business income in 2011 due to the economy [Read more…] about New Additions to IRS “Fresh Start” Program

Three Common IRS Audit Red Flags You Can Avoid

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No one likes to get audited. It probably ranks somewhere between a root canal and having your e-mail account hacked on the misery scale.  While only about 1% of all individual tax returns are selected, certain factors can bring your return under the IRS radar. Some may be unavoidable, such as the nature of your business, but here are a few red flags you can avoid: [Read more…] about Three Common IRS Audit Red Flags You Can Avoid

Attorneys Beware:IRS Targeting You!

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The IRS recently signaled an increase in scrutiny of attorneys, releasing a comprehensive Attorneys Audit Technique Guide (ATG) for IRS auditors when reviewing attorneys’ returns. The guide pinpoints potential problem areas, as well as procedures, that IRS agents must focus upon when auditing attorney returns. Key areas include: [Read more…] about Attorneys Beware:IRS Targeting You!