With the passing of the Inflation Reduction Act, the IRS was given an 80 Billion budget increase, essentially doubling the size of the IRS. What does this mean for you?
Welp, it means you have to stop half-stepping, be willing to learn and understand your taxes, prioritize organization or be willing to pay someone to do it for you, learn how to maintain records, or become a member of a clergy and take a vow of poverty so you do not have to file taxes any more. You won't be entitled to social security taking a vow of poverty, but at least you won't be stressed with filing taxes.
What will they do with this funding?:
The IRS has started hiring new agents
There should be quicker response time when calling.
The processing time for tax returns should speed up, and they should be quicker with processing 2019 and 2020 tax returns.
Technology will be getting updated and algorithms will be put in place.
Audits will be more frequent. Do not have a false sense of security because you are not making an income of $400,000 or more in income. If you make less than $400k, this means your tax shouldn't go up. This doesn't mean you will be exempt from the auditing process. The auditing protocols for the low and moderate income were tested in 2012 and made law in 2015.
Ways to Avoid an IRS Audit
Claiming Children & Dependents - The Protecting Americans from Tax Hikes (PATH) Act of 2015 is an Obama-era law that expanded or renewed a number of tax credits for individuals, families, and businesses while implementing measures to prevent fraudulent claims for those credits. This is why there is a hold for those claiming ETIC, Child Tax credit, School Credit. You have to prove your have rights to claim your children or other dependents EVERY YEAR!
2020 during covid, they Increased this protocol big time because absent parents, relatives, and fraud people were trying to claim children they have no rights to claim because the Stimulus and Child Tax Credit Advance. It's more paperwork, yes. But if you have legal claims, there shouldn't be any problems. Especially if you want a quicker processing time. You can fuss and complain, or just give them what they want. So keep on hand:
Birth Certificates, SS Cards, School ID's, State ID's (children can get state ID's) - to prove Identity of child or dependent.
Utility Bills, Doctor records, School records, Custody court orders, food stamp approval letters, or lease - To prove your child or dependent lives with you.
Separated parents - You must have a court order if you alternate claiming child tax credit. This is not the same as EARNED INCOME CREDIT. The IRS doesn't not override state court orders. You most follow your court order. The child will be on the tax return of both parents. If your tax preparer doesn't know how to do this, scrap em.
If you have guardianship of a child or relative, YOU MUST HAVE THE LEGAL DOCUMENTATION TO PROVE IT.
Filing Status
If you are married, you are filing married filing jointly or married filing single. NOT HEAD OF HOUSEHOLD. If you get caught with this lie, the IRS will give you a penalty where you cannot claim Earned income credit for 10 years. If you are married and separated, provide the docs of the legal separation. You will have to meet the IRS criteria to file HOH regarding circumstances other than divorce or legal separation.
File on time even if you owe.
Many taxpayers that don’t have the money for taxes (a planning and budgeting issue that can be fixed. you should not be owing back to back every year), or don’t think they have enough money, don’t file. They hide and avoid filing. This only causes more problems down the road. You can always make a payment arrangement Just rip off the bans-aid, and plan better for the next year.
Do not ignore your IRS letters
IRS notices have a time clock on them for you to respond. Do not wait til the last minute to respond. You lose your right to appeal, ask for reconsiderations, or make corrections ignoring them. Rip off the Band-Aid
Rental Properties
Stay off the Schedule E if possible. Put your rental property under a business formation.
As a side note- Take a property management class if you are going to be a landlord. I have seen so many who love the idea of having rental property, but they are not netting a profit or incur legal liability because they don't know how to be a landlord in their state and abide by the state laws.
Business Deductions
Know your numbers. Don't just randomly pull numbers out your wazoo for business expenses. The IRS has a list of industry averages. You should know yours. Not just for filing taxes, but because that's just good business sense.
Avoid round Numbers
Keep good records of income and expenses. You don't have to use QuickBooks if it is confusing. Excel can be your friend and is simple. Hire a book keeper if necessary.
Avoid inflating the Home Office Expense
FILE YOUR 1099s ! ! ! The IRS is cracking down on people working under the table. If you want to claim the contractor business expense, you have to give these people a 1099. Or else the IRS will take the claim away. ( When to file a 1099. )
S-corp election, if you picked this for your business, you have to pay yourself. Not taking money from 1 bank account and putting it into another. You need a formal payroll. This is why you do not make this election until your business is income worthy. You have to pay the payroll expense (which is tax deductible). Not having a payroll was why people with Scorp status were getting denied the PPP loans for the 2nd round.
File ON TIME. Business tax returns have different deadlines. Know yours.
Pay your quarterly taxes if it applies.
Avoid Reporting Business Losses continuously back to back within a 5 year period. The purpose of a business is to make a profit. No profit, no business. This could cause the IRS to downgrade you to a hobby. Then you will pay taxes on hobby income.
These are the basic and most common issues for the average taxpayer. This list will increase the more you diverse your portfolio and derive income from different income sources. Don't take tax, financial, or business advice from randoms on YouTube or Instagram, or TikTok before verifying their credentials.
Build your team of people who like to stay in their lane and are honest enough to direct you to another professional on topics that are not under their hat, (tax professional, Industry mentor, Life insurance agent/financial advisor, Estate Plan/Asset protection lawyer, etc) .
Σχόλια