DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...

Your next audit may be an "audit lite"

Your next audit may be an "audit lite"

Your next audit may be an "audit lite"

The IRS is handling more reviews with form letters

In-person audits with an IRS agent are becoming more uncommon. The IRS is instead handling many routine reviews through form letters called correspondence audits.

These IRS letters are a kind of “audit lite” the agency uses to ask for clarification and justification of specific deductions on your tax return. Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education savings plans, excess miscellaneous deductions, and small business expenses.

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June 2015 DiSabatino CPA Newsletter

June 2015 DiSabatino CPA Newsletter

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In this issue:

  • The Chances of Being Audited
    2014 audit statistics show changes  
  • Know Someone Getting Married?
    Tips for every bride and groom  
  • The Father's Day Quiz
    A little summer fun  
  • In the News: IRS Data Breach
    Was your taxpayer identity stolen?  

 

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IRS tax audits cut by budget issues

IRS tax audits cut by budget issues

IRS TAX AUDITS CUT BY BUDGET ISSUES

The IRS reports that its enforcement budget has been cut by $254 million, a 5% reduction from the previous year. As a result...

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Ideas to Help Audit Proof Your Return

Ideas to Help Audit Proof Your Return

Ideas to Help Audit Proof Your Return

No one likes the stress involved when your tax return is under the audit spotlight. Here are some ideas to avoid some of the more common audit triggers.

  1. Report everything that has an informational tax return. If you are like most Americans, you will receive numerous 1099’s, W-2’s, and 1095-A’s in the mail. The IRS receives them too. If your tax return does not meet or exceed this reported income you can count on receiving a notice from the IRS. Some hints:
    • Make a list of the forms received last year
    • Update the list with any new vendors or employers
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Lifestyle Audits. A thing of the past?

Lifestyle Audits. A thing of the past?

Lifestyle Audits. A thing of the past?

The word “audit” is enough to raise anyone’s blood pressure. If the IRS agent then tells you they want to see bank accounts and personal records you may need a heart monitor. Should this happen to you, you could be in a process known as a lifestyle audit.

Background

The lifestyle audit was a tool used by auditor’s to ascertain if the income you claim on your tax return can support how you live.

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June 2014 DiSabatino CPA Newsletter

June 2014 DiSabatino CPA Newsletter

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In this issue:

  • The Chances of Being Audited
    2013 audit statistics show changes
  • Alimony in the Spotlight
  • Setting up Your Business
    Accounting System
  • Looking for a Summer Job

The Month of May:

  • June 15th: Father's Day
  • June 16th: 2nd Quarter Estimated Tax Due
  • July 4th: Independence Day

 

With the end of tax filing and the start of summer why not focus on new beginnings? Included in this month's newsletter are some ideas to help find summer employment and some suggestions on the benefits of creating a good accounting system for your small businesses.

Wonder what the IRS has in store for audits? Consider reviewing the article on audit statistics and a new area of focus within the agency on alimony reporting compliance.

Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

The Chances of Being Audited

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Alimony Mis-match Getting IRS Audit Attention

Alimony Mis-match Getting IRS Audit Attention

The U.S. Treasury Department recently released an audit report revealing a disturbing level of non-compliance in alimony reporting on tax returns. This non-compliance will result in vast increase in tax return reviews now and in the years to come. Here is what you need to know.

The study

The Treasury Inspector General for Tax Administration (TIGTA) recently conducted an Audit of 2010 tax returns that claimed an alimony deduction. What they found:

  • Over 560,000 taxpayers reduced their income for alimony paid in 2010.
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Preparing Your Business for a Sales/Use Tax Audit

Preparing Your Business for a Sales/Use Tax Audit

 

Preparing Your Business for a Sales/Use Tax Audit
How to take the bite out of the audit sting

It is no surprise that states audit their small business community as a productive way to increase revenue for their state coffers. Should you receive the dreaded notice of one of these audits, here are some ideas that can make this a more pleasant experience:

  1. Review the sales tax rules. Know the rules in your state and locality. Pay special attention to areas that are not taxed. A quick internet search on sales and use tax audits for your state should yield examples of areas the auditor will focus their resources. Pay attention to the terminology used in these documents. Use the same terminology when talking with the auditor.
  2. Conduct a self-audit. Prior to the arrival of the auditor, audit yourself. Begin with your sales receipts, migrate to capital purchases, and then finish with your bills. Pay special attention to internet sales and purchases you make with your credit card.
  3. The best defense is a good offense. You may find areas in your self-audit where you paid tax when none was due. Perhaps you have production equipment and your energy providers charge you sales tax on all your power. You may be due a sales tax refund for up to three years of this production energy use.
  4. Watch out for capital equipment. The sales tax rules on capital equipment can vary dramatically. Some vendors may be required to collect and send in sales tax on equipment purchases that are not taxable. You must then file to collect a refund.
  5. The expense report trap. An easy way to have the auditor pay for their time is to review your expense reports. Often you do not keep receipts of items purchased at a retail store. An auditor could assess you sales tax on items purchased at Walmart, simply because you did not keep the receipt. This despite the fact that a Walmart retail store always collects sales tax.
  6. It’s not usually taxes on your sales that gets you. Remember, it is not often the collecting and transmitting taxes on your sales that gets attention in an audit, it is the payment of use tax and sales tax purchases you make and potentially overlook.
  7. Pre-determine scope of audit. Prior to the audit please inquire what the scope of the audit will entail. If the timing of the audit will create a hardship, request a time that is better for you and your business. Consider recommending sampling a defined period of time versus a full review of all your records.
  8. Get help. Finally, please consider that you will typically encounter an audit of this type once or twice during your career. The auditor does this every day. So get help as soon as you receive the audit notice.

Remember, all states share information with each other. They know sales and use tax audits of small businesses often generate more income than the state pays their auditor. Knowing this, it is best to be prepared.

We're happy to offer guidance and help you make smart tax decisions.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

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Understanding Your Special K's

Understanding Your Special K's
1099-Ks are now being subject to underreporting IRS audits

For the first time, the IRS is reporting that it will be comparing filed 1099-Ks against income reported on business tax returns (including those reported on 1040 Schedule C tax returns). Knowing how this impacts you can save you an unwanted IRS correspondence audit.

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