The start of the year is the perfect time to begin preparing for taxes. It may feel a bit overwhelming, but breaking it down into small steps can make the process much easier. Here’s a simple guide on what you need to do for taxes at the beginning of the year:
Gather all necessary financial documents. These include:
Review your tax withholding—how much your employer is taking out of your paycheck for taxes.
You can reduce your taxable income by contributing to retirement accounts or health savings accounts (HSAs). Consider making the following contributions:
If you’ve had any major life changes—like marriage, divorce, having a child, or moving—make sure your information is updated with your employer. This is important for both your W-2 withholding and your tax return.
If you’re self-employed or earn freelance income, you’ll likely need to make estimated tax payments throughout the year. At the start of the year, set up a budget or savings plan to set aside money for these payments. That way, you won’t be caught off guard when the IRS comes calling.
Your filing status determines how much tax you pay. At the beginning of the year, think about whether any changes in your life could affect your tax filing status. For example:
If you plan to claim deductions for things like business expenses or charitable donations, start keeping track of your spending right away. Use an app like Quickbooks or Total Office Manager (TOM), spreadsheet, or old-fashioned notebook to track your expenses, so when tax time rolls around, you’ll have everything in order.
Each year, tax laws can change, so it’s important to stay informed. For example, there may be new tax credits, deductions, or changes in tax rates. By reviewing tax laws early in the year, you can make adjustments that could help you save money when you file. A good tool to use is the Tax Updates and News page on the IRS website.
The earlier you can get organized and plan for taxes, the better. By gathering documents, reviewing your withholding, and making smart financial decisions now, you’ll make the tax season much easier on yourself. Stay proactive and you’ll avoid any last-minute stress when tax time arrives.
Tax Documents You Need to Bring to Your Tax Preparer
Common Tax Scams and Fraud Alerts: What You Need to Know
Thank you for taking the time to read this article. We are committed to continuously improving and are always eager to help in any way we can. If you have any questions, comments, or suggestions, please feel free to share them and we will respond promptly.
Thank you,
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
RA Tax & Accounting, Inc.
8877 Bourgade Street, Lenexa, KS 66219
Life gets busy and it can be easy to overlook important deadlines. When it comes to filing your tax return, it’s not the end of the world if you are late. There are steps you can take to correct the situation and minimize any potential penalties or interest. In this article, we’ll walk through what to do if you missed the tax return deadline. This is a guide for individuals and small business owners to help navigate the process smoothly and avoid unnecessary stress.
The most important step is to file your return as soon as possible. The IRS prefers that you file your return, even if it’s late, rather than risk penalties for not filing at all.
Here’s why: The IRS imposes a penalty for late filing, which can be much higher than the penalty for late payment. However, the penalty for not filing a return at all can be much more severe. The sooner you file, the better your chances are of minimizing both the filing and payment penalties.
Late Payment Penalty: The IRS typically charges a late payment penalty of 0.5% per month on the taxes you owe. This can add up quickly so it’s best to pay what you can right away, even if it’s not the full balance.
When you file your return late, you might have to pay additional penalties and interest, especially if you owe taxes. Even if you can’t pay the full amount owed, it is critical to pay as much as you can to reduce the amount of penalties and interests that will accumulate.
Interest: In addition to penalties, interest on the unpaid balance will accrue from the due date of the taxes until they are paid in full. Interest rates are generally set quarterly by the IRS.
If you’re unable to pay in full, there are options for small business owners and individuals to set up payment plans or installment agreements with the IRS. These plans allow you to make smaller monthly payments until your debt it settled.
If you realize that you’ve missed the deadline but are still within a certain timeframe, it might be worth considering whether you can file for an extension. In most cases, the IRS allows taxpayers to request an extension to file their return, giving you an additional six months to submit your paperwork. Keep in mind that this does not extend the payment deadline and it will not affect how much you owe or receive.
If you owe taxes, they still must be paid by the original due date to avoid the penalties for late payment. Therefore, if you expect to owe, it’s better to pay the estimated amount by the deadline and file the extension for paperwork completion. Extensions can be filed online through the IRS website or by mailing in Form 4898.
If you miss the tax deadline, it’s important to understand the possible penalties you may face. The two primary types of penalties are for late filing and late payment.
Late Filing Penalty: If you file your tax return more than 60 days after the due date, the IRS may charge a late filing penalty of 5% of the unpaid tax for each month your return is late, up to a maximum of 25%. If you owe taxes and are late, this penalty can quickly add up.
Late Payment Penalty: The IRS charges a penalty of 0.5% per month on the unpaid taxes. It will continue to accrue until the balance is paid in full. You can avoid the late payment penalty if you show “reasonable cause” for the late payment.
Interest: Interest will accrue on any unpaid taxes, compounded daily, until your balance is paid in full.
For more information on penalties, visit the IRS website here.
In some cases, you might be eligible for penalty relief if you have a good reason for missing the deadline. For example, if you were affected by a natural disaster, illness, or other serious issues, the IRS may waive or reduce your penalties. Business owners may be able to make a case for penalty relief due to unforeseen disruptions in their operations.
To apply: If qualified, you can request it when you file your tax return or by calling the IRS directly.
As a business owner, you may have different filing requirements compared to individual taxpayers. Missing the deadline for business taxes can lead to additional complications, such as:
Self-Employment Tax: If you’re a sole proprietor, you’ll need to pay self-employment taxes on your income, which covers Social Security and Medicare contributions.
Quarterly Estimated Taxes: Small business owners are generally required to pay estimated taxes on a quarterly basis. If you miss a quarterly payment, you may face penalties for late payment. However, if you didn’t owe taxes for a given quarter, there might not be an penalties.
Other Business Deductions: By missing the deadline, you might lose out on valuable business deductions. Filing late may also delay any refunds you are due or may effect the timing of deductions related to your business expenses.
If you filed your return but later realized that you made a mistake, don’t panic! You can amend your tax return using Form 1040-X (or its equivalent in your country). This form lets you correct errors such as:
If the amendment results in a larger refund, you will generally receive it after the form is processed.
If the amendment increases the taxes owed, be sure to pay the additional taxes as soon as possible to avoid more penalties and interests.
If you find the process confusing or are unsure of how to handle your specific situation, it may be a good ideas to consult with a tax professional. A certified public accountant (CPA) or tax advisor can guide you through the process, helping minimize penalties and ensure that you file correctly. Our firm, RA Tax and Accounting, Inc. is always accepting new clients. For more information about our services, you can visit our Services page on our website.
Missing a tax return deadline is a common issue, but it doesn’t have to be a disaster. The most important thing to do is file your return and pay any taxes owed as soon as possible. By understanding the potential penalties, seeking an extension if necessary, and considering your options for penalty relief, you can lower the impact of a missed deadline.
Whether you’re a regular taxpayer or a business owner, being proactive, organized, and staying on top of your filing obligations will help you avoid issues in the future. Don’t let one missed deadline snowball into bigger problems. Take actions, stay informed, and get the help you need to move forward confidently.
Thank you for taking the time to read this article. We are committed to continuously improving and are always eager to help in any way we can. If you have any questions, comments, or suggestions, please feel free to share them and we will respond promptly!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
The Internal Revenue Service (IRS) is the U.S. government agency responsible for tax collection and enforcement of tax laws. To assist taxpayers in meeting their obligations, the IRS offers a variety of tools, including online portals for filing and payment, resources for checking tax refunds, and guides for managing tax deductions and credits. Additionally, the IRS provides access to forms, educational materials, and personalized assistance through help centers to ensure accurate and timely compliance.
Almost all of the tools the IRS provides are free. In this article, we will explore the most common tools and specify how much to costs, if any, to use.
Individuals can create or access their own IRS online account (free, must have current driver’s license and a device with access to the internet with a front-facing camera). With an account, you can do the following:
Business owners can create or access their own IRS business tax account (free, must have current driver’s license and a device with access to the internet with a front-facing camera). Depending on the type of business structure you have, you can either have full or limited access to all capabilities. For more detailed information for each business type, you may visit the business tax account page from the IRS website. Depending on the business structure, those with a business tax account have access to the following:
– Limited Access (Individual partners of Partnership or individual shareholder of S Corporation)
– Full Access (Sole proprietors or designated official of Partnership, S corporation, or C Corporation)
Individuals can order copies of tax records like transcripts of previous tax returns, tax account information, wage and income statements, and verification of non-filing letters (free). These records can also be viewed and downloaded from your Individual Online Account.
Business owners can obtain their transcript by downloading it from your Business Tax Account or requesting it by mail by filing out Form 4506-T, Request for Transcript of Tax Return (free). To get a copy of a previous tax return, fill out Form 4506, Request for Copy of Tax Return (costs $50).
By downloading the IRS2GO app on a mobile device (free and available in English and Spanish), taxpayers can utilize the following:
The IRS Free File allows taxpayers, who meet the criteria, to prepare and file federal tax returns online using guided tax preparation software. To qualify, you must have an adjusted gross income (AGI) of $79,000 or less.
Taxpayers also have access to the most commonly filed forms and schedules. You can find a list of these forms here.
Individuals can check the status of their amended return 3 weeks after it has been submitted. Generally, it takes 8 to 12 weeks to be processed, 16 weeks at the most. This will show your amended return status for the last 3 years and the current year. This tool is free but you must have your SSN, date of birth, and ZIP code.
There are some limitations. This will not give you the status for business returns, those with a foreign address, injured spouse claims, carryback applications/claims, Form 1040 marked as amended/corrected return instead of 1040-X, returns processed by special units like Examination or Bankruptcy. To use this tool and for more information, visit the Where’s My Amended Return page on the IRS website.
This tool can be used to check your refund and/or its status. For a current-year return, the status appears 24 hours after e-filing. For a prior-year return, the status appears 3-4 days after e-filing. For a paper-filed return, the status appears 4 weeks after filing. The form to request a refund status is here.
To check your refund status, you’ll need your filing status, the exact refund amount on your return, and your SSN or ITIN (individual taxpayer ID number). After your refund has been approved and sent, it may take 5 days to appear in your bank account or several weeks for your check to come in by mail. For more information, visit the Where’s My Refund page on the IRS website.
Taxpayers can upload documents using the Document Upload Tool to respond to an IRS letter/notice. This is not for uploading tax returns. This tool is a secure and fast way to send information via PDFs, JPGs, or PNGs. A confirmation is sent out when the IRS has received your documents.
To upload, you’ll need an access code (if provided) or the notice/letter number on title, the first/last name or business name on the notice/letter, and a SSN or EIN.
This tool is a calculator to help you see if you’re eligible for the Earned Income Tax Credit. This helps low to moderate income workers and their families get a tax break. This can reduce the tax you owe and/or increase your refund amount. It also shows if you have any qualifying children or relatives, the estimated amount of credit, and your filing status.
To use, you’ll need to provide your income statements (W-2s, 1099s, etc.), documents stating taxes withheld or money paid to you, and any expenses or adjustments to your income.
Taxpayers can search for a non-profit organization or charity to see if it can receive tax-deductible contributions. You may also download data sets like an organization’s tax-exempt status and filings. To access the tools, visit the Tax Exempt Organization Search on the IRS website.
Taxpayers can calculate an estimated federal income tax amount that they want withheld from their paycheck. This tool allows those to see how that amount affects your refund, tax due, and take-home pay.
To calculate, you’ll need your most recent tax return, pay stubs from you and your spouse (if applicable) for all jobs, and other income information like side jobs, investments, self-employment, etc.)
For more information on what to do after you calculated your withholding amount, please visit the Tax Withholding Estimator page on the IRS website.
This tool helps you determine the amount of state and local general sales tax claimed when itemizing deductions on a Schedule A.
To calculate, you’ll need your income statements (W-2s, 1099s, etc.), receipts for specified large purchases, ZIP code, and dates lived in said ZIP code.
An EIN is a federal tax ID number for businesses, tax-exempt organizations, and other entities. This is required for almost all businesses. This tool allows you to either get an EIN or verify your existing EIN in minutes. For more information to determine if you need one, visit the Employer Identification Number page on the IRS website.
The EFTPS allows you to pay your federal taxes with no additional cost. This includes your income, employment, and estimated/excise federal taxes. New enrollments can take up to 5 business days to process. You may also:
For further information, visit the EETPS: The Electronic Federal Tax Payment System on the IRS website.
While these are not all the tools the IRS offers, these are the most common ones. For further information and more tools, visit the Tools page on the IRS website. Utilizing these resources can help out tremendously and most of them are free, so why not use them?!
Tax Planning for Retirement: Keep More of Your Hard-Earned Money!
Thank you for taking the time to read this article. We are committed to continuously improving and are always eager to assist in any way we can. If you have any comments, suggestions, or questions, please feel free to share them and we will respond promptly!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
As you get closer to retirement, it’s natural to focus on how much you’ve saved and whether it’ll be enough to support you once you stop working. But here’s something that often gets overlooked: taxes. The way you manage your taxes—before and after retirement—can make a huge difference in how far your savings will go.
In this article, we’ll walk you through the basics of tax planning for retirement, offering practical tips to help you make smarter decisions now that will pay off later. The good news is, it’s never too early to start thinking about it and if you’re here, you are already ahead of the curve!
First, let’s take a look at where your retirement income will likely come from. Understanding the different sources of income can help you plan how to reduce taxes and stretch your savings.
Social Security: Most people rely on Social Security for a chunk of their retirement income. The tricky part? Depending on your total income, a portion of your Social Security benefits might be taxable. For most retirees, up to 85% of your Social Security benefits could be taxed. But the more other income you have, the higher that percentage can go.
401(k)s and IRAs (Traditional): These accounts are tax-deferred, meaning you don’t pay taxes on the money you contribute now, but you will pay taxes when you withdraw it in retirement. The key to remember is that these withdrawals will be taxed at your regular income tax rate, which could be higher than you expect, especially if you’re not prepared.
Roth IRAs and Roth 401(k)s: The beauty of Roth accounts is that you pay taxes on your contributions now, but your withdrawals are tax-free when you retire, as long as you meet the conditions. This is a great option if you expect to be in a higher tax bracket later on or want to avoid paying taxes on your retirement income altogether.
Pensions: If you’re lucky enough to have a pension, those payments are usually taxable as ordinary income, just like a paycheck would be.
Investment Income: If you have investments in a taxable brokerage account, you’ll pay taxes on any interest, dividends, or capital gains when you sell those investments. Long-term capital gains, for investments held more than a year, are usually taxed at a lower rate than short-term gains, so it’s worth thinking about how you manage your investments in the years leading up to retirement.
As you save for retirement, think about which type of accounts will give you the most tax advantage.
Tax-Deferred Accounts: These are your traditional 401(k), 403(b), and IRA accounts. The big draw here is that you get to lower your taxable income in the year you contribute. So, if you put $10,000 into a 401(k), your taxable income for the year drops by $10,000, which can result in immediate tax savings. The downside is you’ll have to pay taxes when you withdraw the money in retirement. If you expect your income and tax rate to be lower in retirement, this can work out well.
Tax-Free Accounts (Roth Accounts): Roth IRAs and Roth 401(k)s are a little different. While you don’t get a tax deduction when you contribute, the beauty of these accounts is that qualified withdrawals in retirement are 100% tax-free. If you think you might be in a higher tax bracket in retirement, or you simply want to avoid the hassle of paying taxes on your retirement income, Roth accounts are a powerful tool.
***Tip: It’s a good strategy to have both types of accounts. If you’re in a high tax bracket now, focus on contributing to tax-deferred accounts. If you think your tax rate will go up later, or if you want to minimize future taxes altogether, build up a Roth account too.
You’ve worked hard to save. Now the goal is to make your money last in retirement. How you withdraw money from your accounts can make a big difference in your tax bill.
Withdraw from Taxable Accounts First: If you have investments in taxable accounts, like stocks or mutual funds, consider tapping these accounts first. This is because long-term capital gains on investments held for more than a year are taxed at a lower rate than regular income. You can often save on taxes by using these funds early on.
Use Tax-Deferred Accounts: Once your taxable accounts are tapped out, it’s time to dip into tax-deferred accounts like your traditional IRA or 401(k). Be aware, withdrawals from these accounts are taxed as ordinary income, so you may end up paying a higher tax rate depending on how much you withdraw.
Roth Conversions: Another tactic is converting some of your tax-deferred funds into a Roth IRA before you reach age 73, the required minimum age where distributions or RMDs kick in). While you’ll pay taxes on the conversion now, it could save you in the long run, especially if you expect your tax rate to increase or you want to avoid paying RMDs later. These will be explained further in the next section.
Starting at age 73, the IRS requires you to start withdrawing a certain amount from your traditional 401(k) or IRA each year—these are called Required Minimum Distributions (RMDs). The downside is that they’re taxed as ordinary income, which can push you into a higher tax bracket, increasing your tax bill.
Roth Conversions: One option is to convert some of your traditional retirement funds into a Roth IRA before you hit age 73. With a Roth, you won’t be required to take RMDs, which helps reduce your tax burden in retirement.
Give to Charity: If you’re charitably inclined, consider making Qualified Charitable Distributions (QCDs) from your IRA. You can donate up to $100,000 directly to a charity each year, and it counts toward your RMD—without being taxed. It’s a great way to lower your taxable income and give back to the causes you care about.
Even in retirement, there are ways to reduce your tax bill. Don’t miss out on tax breaks that could help lower your income taxes!
Medical Expenses: If you itemize your deductions, you can deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). As healthcare costs rise, this can be a significant deduction for many retirees.
Standard Deduction: Most retirees will find that the standard deduction is more valuable than itemizing deductions. For 2024, the standard deduction is $27,700 for married couples filing jointly and $13,850 for single filers. This can lower your taxable income significantly, especially if you don’t have a lot of other deductions.
Tax Credits: If you’re over 65 and have a lower income, you may qualify for the Credit for the Elderly or Disabled, which can further reduce your tax bill.
Many retirees choose to work part-time or start a side business. That extra income can be helpful, but it can also affect your taxes.
Social Security Taxes: If you’re already collecting Social Security and your earnings from work are above a certain threshold, a portion of your benefits may become taxable. The more you earn, the higher the percentage of your benefits that will be taxed. For more information, visit the Social Security Administrations website.
Pension and Income Taxes: If you’re receiving pension payments and/or have other sources of income like wages from part-time work, you may end up in a higher tax bracket. This could increase your tax liability.
Retirement is intended to be a time to relax and enjoy life—but if you’re not careful about how you handle taxes, it can also be a time of surprises. As you start thinking about how to balance your retirement accounts, minimize your tax burden, and take advantage of deductions and credits, you are taking a proactive approach to tax planning. It’s not just the start of a new chapter—but a financially healthy one too!
Common Tax Scams and Fraud Alerts: What You Need to Know
Thank you for taking the time to read this article. We are committed to continuously improving and are always eager to assist in any way we can. If you have any comments, suggestions, or questions, please feel free to share them and we will respond promptly!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
If you’ve been running a small business for 5 to 10 years, you’ve likely hit a point where you’re looking to scale. You’ve got a solid foundation, but how do you take your business to the next level? Here are 9 key strategies to help you grow faster and more wisely.
Your loyal customers are your best asset. Focus on:
As your business grows, efficiency becomes critical:
If you haven’t already, think about adding new ways to generate income:
Double down on marketing strategies that have worked:
Don’t limit yourself to one way of selling:
Satisfied customers are more likely to return and refer others:
Collaborating with complementary businesses can expand your reach:
Cash flow is key to scaling:
As your business grows, you’ll need the right team to support you:
Growing your business quickly requires a combination of smart marketing, operational efficiency, and strategic expansion. By focusing on retaining and expanding your customer base, automating processes, diversifying revenue streams, and refining your marketing, you can set your business up for accelerated growth.
The key is to stay agile, focus on what works, and be open to new opportunities for growth. With these strategies in place, you can move your business toward the next level of success.
How to Minimize Your Audit Risk
Thank you for taking the time to read this article. We are always striving to exceed expectations and learn more about your needs. If you have any questions, comments, or suggestions, please contact us using the email below. Thank you again and stay safe!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
As tax season rolls around, it’s easy to feel a mix of anxiety and confusion about preparing your taxes. Whether you’re filing for the first time or you’ve been through the process many times, gathering the right documents can make a world of difference. Having everything organized not only helps your tax preparer find every possible deduction and credit but also brings you peace of mind knowing that you’re set up for success. In this article, we’ll list the essential tax documents to bring along, so you can approach your tax planning appointment with confidence.
The following checklists will be for individuals, small business owners, and those who have a charity/non-profit organization. These will provide you with the most common tax documents needed. However, this can differ depending on your situation, special requirements, business structure, etc. Be sure to contact your tax preparer if you have anything you are unsure about. You can also visit the IRS website for more information.
Bringing the necessary documents to your tax preparer is more than just a checklist; it’s a vital step in ensuring your tax return is accurate and complete. When you’re organized and prepared, you not only save your preparer valuable time but also help them identify every possible deduction and credit that could benefit you. This attention to detail can lead to a larger refund or a lower tax bill, giving you peace of mind during what can often be a stressful time. So, as you gather your paperwork, remember that each document plays a role in painting a clearer picture of your financial situation. By being diligent and thorough, you’re setting yourself up for a successful tax filing experience and paving the way for financial confidence in the year ahead!
Preparing for Income Tax Filing: A Guide for Small Business Owners
Thank you for taking the time to read this article. These checklists can be a great tool to refer back to when necessary. If you have any questions, comments, or suggestions, please contact us by using the email below. Thank you again and I hope you have a great day!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
Tax audits can be stressful, time-consuming, and costly. While the IRS conducts audits for various reasons, there are proactive steps you can take to reduce your risk significantly. By maintaining accurate records, understanding tax laws, and adopting good financial practices, you can create a strong defense against the possibility of an audit. This article will explore useful strategies to help you stay ahead to minimize your audit risk and ensure your tax filing process runs smoothly.
One of the most effective ways to prevent an audit is to maintain thorough and organized financial records. Accurate documentation of all income, expenses, and transactions not only supports your tax returns but also provides a clear financial picture of your situation.
Digital Documentation: Consider using accounting software or apps to manage your finances like Total Office Manager® (TOM) or QuickBooks® They can help you categorize expenses and income, making record-keeping easier.
Failing to report all sources of income is one of the most common triggers for an audit. Whether you earn money from freelance work, side gigs, or investment income, it’s crucial to report it all.
Deductions are a great way to reduce your taxable income but claiming excessive or unusual deductions can raise red flags. The IRS uses algorithms to identify returns that fall outside typical ranges for similar taxpayers.
Filing your tax returns on time is crucial. Late filings can attract unwanted attention from the IRS and increase your chances of being audited.
While many individuals and small businesses choose to file taxes on their own, hiring a tax professional can provide valuable insights and expertise that can help you avoid mistakes that might trigger an audit.
Before submitting your tax return, it’s essential to review it for errors or inconsistencies. Simple mistakes can lead to an audit, especially if they raise suspicion.
Tax laws are constantly changing, and staying informed can help you avoid pitfalls that lead to audits. Understanding the latest regulations can also provide opportunities for legitimate deductions and credits.
Consistency in reporting your income and expenses yearly can signal to the IRS that your financial practices are legitimate. Sudden and unexplained changes can lead to increased scrutiny.
Using exact amounts, especially with deductions, can look suspicious. It may appear as if you’re inflating numbers or manipulating figures.
If you receive any notices or correspondence from the IRS, respond promptly. Ignoring these communications can escalate issues and increase your audit risk.
I hope this helps you feel better equipped when it comes to minimizing your audit risk. While there’s no guaranteed way to prevent an audit, following these strategies can significantly reduce your risk. By following these practices, you can create a solid foundation for your financial practices.
Taking proactive steps to ensure your tax filings are accurate and compliant will enhance your overall financial health. Whether you’re an individual taxpayer or a small business owner, adopting these strategies will empower you to navigate the complexities of tax season with confidence.
Common Audit Triggers for Individuals and Small Businesses
Thank you for taking the time to read this article. We are always striving to exceed expectations and learn more about your needs. If you have any questions, comments, or suggestions, please contact us using the email below. Thank you again and stay safe!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
RA Tax and Accounting, Inc.
Tax audits can be unexpected, stressful, and intimidating for both individuals and small businesses. While the IRS conducts audits for various reasons, understanding the common triggers can help you avoid potential pitfalls. This article details the key reasons individuals and small businesses face audits and offers tips to minimize your risk.
One of the most significant triggers for an audit is underreporting income. This often happens when taxpayers fail to include all their earnings on their tax returns. The IRS receives copies of income reports, such as W-2s from employers and 1099 forms from clients or financial institutions. If the amounts reported by these entities don’t match what you report, it raises a red flag.
Claiming excessive deductions is another common reason for audits. When deductions appear unusually high compared to your income level or industry standards, it can attract scrutiny from the IRS. For instance, if business expenses are disproportionately large relative to revenue, the agency may question their validity.
Self-employed individuals face a higher risk of audits compared to traditional employees. This increased scrutiny often stems from the complexities of self-reporting income and expenses. If a self-employed individual reports losses for multiple consecutive years, it raises concerns about the legitimacy of their business.
Using round numbers in your tax return can appear suspicious. The IRS prefers precise figures, as they indicate accuracy and thoroughness in reporting. Round numbers can suggest that estimates were used rather than actual figures, leading to further investigation.
The home office deduction can be beneficial for many self-employed individuals and small business owners. However, it is also a common audit trigger, especially if the space doesn’t meet IRS criteria for a legitimate home office. The IRS investigates these claims to ensure they are valid.
Charitable donations can provide significant tax benefits, but claiming contributions that are disproportionate to your income can raise suspicions. The IRS may question whether the donations are legitimate or inflated to reduce tax liability.
Regularly amending tax returns can signal to the IRS that there are inconsistencies or issues with your original filings. Frequent changes may lead to increased scrutiny and a higher likelihood of an audit.
Discrepancies between your tax return and those of other taxpayers, such as business partners or co-owners, can trigger an audit. If the IRS notices inconsistencies in how income or expenses are reported among multiple filers, it may lead to further investigation.
Businesses that operate primarily in cash or engage in large cash transactions may attract IRS scrutiny. The agency may question income reporting in these situations, especially if it seems inconsistent with reported expenses.
Reporting business losses for several consecutive years can indicate to the IRS that the business may not be legitimate. This situation often raises questions about whether the business is being operated as a hobby rather than a legitimate enterprise.
Discrepancies between the information you report on your tax return and the data available to the IRS can lead to an audit. This includes mismatched Social Security numbers, incorrect filing statuses, or discrepancies in reported income figures.
While the thought of an audit can be overwhelming, understanding the common triggers can help you to navigate the tax filing process with confidence. By maintaining accurate records, reporting all income, and avoiding excessive deductions, you can significantly reduce your risk of attracting IRS scrutiny.
Taking these proactive steps enhances your overall financial health. Whether you are an individual taxpayer or a small business owner, adopting these best practices can help you manage your tax responsibilities effectively, allowing you to focus on what truly matters: growing your business and achieving your financial goals.
Common Tax Scams and Fraud Alerts
For extra help, you can always visit the IRS website or contact a tax professional to assist you.
Thank you for taking the time to read this article. We are always striving to exceed expectations and learn more about your needs. If you have any questions, comments, or suggestions, please contact us using the email below. Thank you again and stay safe!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
RA Tax and Accounting, Inc.
As tax year continues, misinformation can spread quickly, leading many to make mistakes on their returns. Here’s a detailed look at some of the most common tax myths, debunked to help you navigate the tax landscape with confidence.
Many people think that if their income falls below a certain threshold, filing a tax return isn’t necessary. However, this isn’t always true. While there are income limits that determine whether you’re required to file, even low-income earners may need to file to claim certain tax credits, like the Earned Income Tax Credit (EITC) or the Child Tax Credit. Filing can also allow you to receive a refund if taxes were withheld from your paycheck. For more information on which tax bracket you qualify for, you can visit the IRS website’s Federal Income Tax Rates and Brackets page.
Some taxpayers believe that owing money means they cannot receive a refund for other credits. In reality, you may still get a refund for refundable credits, which can offset any tax owed. For example, if you qualify for the EITC and owe taxes, your refund may exceed what you owe, giving you extra money back.
It’s a common misconception that only high-income individuals face audits. The truth is, anyone can be audited, regardless of income. The IRS uses various criteria to select returns for review, including discrepancies, unusual deductions, and random selection. Even if you earn a modest income, you should keep thorough records and file accurately to minimize the risk of an audit.
Some taxpayers assume that every dollar they earn is taxable. However, certain types of income are not subject to taxation. For instance, gifts up to a certain amount, inheritances, and some scholarships can be tax-exempt. Knowing which sources of income are taxable and which are not can help you plan more effectively and avoid unexpected tax bills. In addition, it is also important to note that different portions of your income are taxed at different rates. Generally, the more taxable income you have, the higher the tax rate.
Understanding the difference between tax deductions and credits is crucial. Deductions reduce your taxable income, which lowers the amount of tax you owe. For example, if you have $50,000 in income and $10,000 in deductions, you’re taxed on $40,000. On the other hand, tax credits directly reduce your tax liability. For instance, a $1,000 tax credit reduces your tax bill by $1,000. Knowing how to maximize both can significantly impact your overall tax bill.
While many business-related expenses are deductible, not every expense qualifies. The IRS specifies that only ordinary and necessary expenses for your business can be deducted. This means you can deduct expenses like office supplies, travel related to business, and some meals. However, personal expenses or lavish expenditures that aren’t directly tied to your business operations won’t qualify. Keeping detailed records of your expenses is essential for substantiating your deductions.
Pets are cherished members of many families, but unfortunately they cannot be claimed as dependents on your tax return. The IRS has specific criteria for dependents, including age and relationship. To qualify as a dependent, the individual must be a child or relative living with you, or a qualifying child under certain age limits. Understanding these rules is crucial to accurately filing your taxes.
Many people think of tax refunds as extra cash from the government, but in reality, a refund is a return of your own overpaid taxes. If you receive a large refund, it means you’ve had more money withheld from your paycheck than necessary throughout the year. This can be seen as an interest-free loan to the government. Instead of overpaying and waiting for a refund, some people prefer to adjust their withholdings so they can keep more money in their paycheck throughout the year.
Understanding these common tax myths can empower you to make better financial decisions and avoid pitfalls when filing your taxes. Staying informed will help ensure your return is accurate and maximizes your potential benefits. If you have questions or uncertainties, consulting a tax professional can provide personalized advice tailored to your unique situation.
Common Tax Scams and Fraud Alerts: What You Need to Know
I hope this helps you feel more prepared when it comes to understanding common myths about taxes. You are not alone and we are here to help!
Please leave your comments, suggestions, and/or questions and I will try to answer them as soon as possible.
Thank you and stay safe!
Kayla M. Pham / admin@rataxandaccounting.com
Administrator
RA Tax & Accounting
As tax season approaches, so does an increase in scams and fraudulent schemes targeting unsuspecting taxpayers. The Internal Revenue Service (IRS) has made significant efforts to educate the public about these threats, but unfortunately many people still fall victim each year. Understanding these common tax scams can help protect your hard-earned money and personal information. In this article, we will explore various types of tax scams, how they operate, and what you can do to stay safe and protected.
One of the most common tax scams involves criminals impersonating IRS agents. These scammers often call or send emails claiming to be from the IRS, threatening legal action or arrest if the victim doesn’t pay a supposed tax debt immediately. They might provide fake badge numbers and personal information to appear credible.
If you receive such a call or email, remember that the IRS will never initiate contact via phone or email for tax debts. Instead, hang up and report the incident to the IRS or the Treasury Inspector General for Tax Administration (TIGTA). The IRS would never contact you by text message or social media, they would send you certified mail.
Phishing is a method used by cyber-criminals to trick individuals into providing sensitive information, such as Social Security numbers, bank account details, or passwords. Phishing schemes can occur through emails, text messages, or social media.
Always verify the sender’s email address and avoid clicking on suspicious links. Instead, visit the IRS website directly to check any messages regarding your tax status. Use multi-factor authentication for online accounts to add an extra layer of security. You can also contact your tax preparer, and they can verify for you if it’s legitimate or not.
During tax season, many people turn to tax preparers for assistance. Unfortunately, some scammers pose as tax professionals to steal personal information or inflate refund amounts.
Choose tax preparers carefully. Verify their credentials and check for reviews or references. Look for professionals who have an IRS Preparer Tax Identification Number (PTIN). Trustworthy preparers should be willing to discuss their fees and how they determine them upfront.
Refund fraud occurs when a thief uses stolen personal information to file a tax return and claim a refund. This type of scam often targets those who have not filed their taxes yet.
Be vigilant about protecting your personal information, especially your Social Security number. Shred documents containing sensitive information and be cautious about sharing details online. If you suspect you’ve been a victim of refund fraud, file a report with the IRS and the Federal Trade Commission (FTC).
With the rise of online giving, scammers have exploited this opportunity by creating fake charities that solicit donations, especially around tax season when people are looking for ways to reduce their taxable income.
Before donating, research the charity through resources like the IRS’s Tax Exempt Organization Search. Ensure the organization is legitimate and that your donations are tax-deductible.
Scammers may claim you’ve won a lottery or prize that you never entered. They’ll often ask for personal information or an upfront payment to release the winnings.
If you receive such notifications, it’s crucial to remember that legitimate lotteries do not ask winners to pay fees upfront. If you haven’t entered a lottery, you haven’t won.
Social media platforms have become a breeding ground for various scams, including tax fraud. Scammers may use these platforms to target individuals with phishing attempts or false investment opportunities.
Be cautious about unsolicited messages or offers you receive through social media. Always verify the authenticity of the profiles and companies before engaging. Report suspicious accounts to the platform.
As tax season draws near, it’s essential to remain vigilant against scams and fraud attempts. By staying informed and aware of the common tactics used by scammers, you can protect yourself and your financial information. Always trust your instincts; if something seems too good to be true or feels off, it probably is.
If you encounter a scam, report it to the IRS or appropriate authorities to help combat these fraudulent activities. Being proactive and informed is your best defense against tax-related scams, ensuring that you keep your finances secure during tax season and beyond.
If you are unsure whether or not something is a scam, you can always contact your tax preparer and they can help determine if it’s a scam.
The Most Important Tax Law Changes You Need to Worry About
I hope this helps you be more prepared when it comes to understanding the different ways you could be scammed.
Please leave your comments, suggestions, and/or questions and I will try to answer them as soon as possible.
Thank you and stay safe!
Kayla M. Pham
Administrator
RA Tax & Accounting
admin@rataxandaccounting.com
8877 Bourgade Street, Lenexa, KS 66219