Posts Tagged business
Self Employment and IRS Collections
Posted on May 23, 2011 | Tax Studies.
These days, there are a lot of people who are finding themselves self-employed in some way. There’s about 10 million self-employed workers in the United States alone and the number continues to grow every year. After all, with the job market the way it is, it’s a lot easier to try to work out your own business plan or do freelance work within your field. But when it comes to IRS collections, self employment can be a little tricky come tax time.
First you need to determine whether your status is self-employment. You are self-employed if you carry on a business as a independent contractor or a sole proprietor, if you are part of a partnership that carries on a trade or business, or you are just in business for yourself. Part-time work is included in this.
What falls into these lines of work can be a little confusing. While some things are straight forward, like if you write articles freelance for various publications; others can be tricky. Some internships that pay a stipend instead of giving credit will often give a 1040 form that has you down as self-employed. If taxes weren’t taken out of the stipend, you will have to pay them. Before taking on any job or internship, you should inquire as to what it is considered in case it isn’t obvious. There’s also some confusion over husband and wife joint businesses, depending on whether you are partners or one is an employee of another.
You must file an income tax return if your yearly earnings as a self-employed individual are more than $400. If you are running your own business where you are paying yourself, subtract your business expenses from your business income to figure out your end of the year earnings. The self-employment tax in the United States is currently set at 15.30% so you can get an idea of what IRS collections will be.
If you find yourself in need of tax debt relief after figuring out what you owe, you may want to look into getting help dealing with a payment arrangement. It’s also good to have a professional look over your papers before filing, because filing as a self-employed person can be very confusing if it’s not something you are used to. You don’t want to be taken advantage of in any way or lose out on deductions that can help you in the long run, or even turn you around from owing to getting a refund.
Types of IRS Tax Audits
Posted on May 2, 2011 | Tax Studies.
The tax season is over and unless you filed for an extension, most people have put their taxes behind them and are back to their usual business. However, even if you filed your taxes on time and are sure that your returns were accurate and reflected the true status of your taxes, the taxes of the past year or that of other previous years could still need revisiting in case of an audit by the IRS.
The IRS has a legal right to audit your tax returns up to three years after you filed a return. They can also audit up to 6 years back if your taxes were understated by over 25% of what should have been due. The IRS can also request for an audit indefinitely if no returns were made or if there was fraud, intentional omission of information, or provision of incorrect information. Therefore, irrespective of the category you fall in, you need to be aware that the IRS can legally conduct an audit for returns you submitted years ago. Therefore, it is always advisable to file away and store all the relevant support documentation for any year of tax return at least for four years.
The IRS conducts 4 different types of audits depending on whether it is an individual, small business, or large corporation. These four audit types are explained below.
Taxpayer Compliance Measurement Program Audit
The Taxpayer Compliance Measurement Program (TCMP) audit is a random audit performed by the IRS to either individuals or businesses. The IRS picks a sample of returns from various groups of people and entities and performs an audit to prove the information provided in the tax return forms. This type of audit is more common with people who earn more than $1 million dollars a year, businesses that are considered having red flags, and other categories of taxpayers that are known to have a high rate of tax evasion. However, the TCMP audit can be carried out on any taxpayer. This type of audit is rare. However, since you can be subject to these audits that are randomly picked, it is always advisable to be ready with all your tax documentation and answers to all information provided in your tax returns.
The IRS Correspondence
The most common type of audit by the IRS is a correspondence audit. In this type of audit, the IRS sends a letter to the taxpayer requesting for various documentation that support information provided in their tax returns. The IRS could seek the information to cross-check the returns, especially in a case of documentation mismatch. For example, if you claim deductions based on a donation, the IRS expects to receive a donation entry from the charity’s returns. If they do not match such information, they will most likely request for supporting documentation. The IRS will also send a letter to inform you of any penalties and interests that they have been charged to your account and they will give you an opportunity to challenge such charges. If you have documentation to prove the contrary, you can forward it to the IRS and they will review and reverse the audit.
The IRS Office Audit
Another type of audit is the IRS office audit. This is common especially for small businesses whose form and manner of business is not considered “regular” and require some further review. Small businesses tend to attract IRS attention because a lot of devious individuals claim to run a small business in order to receive deductions for extravagant personal purchases and such. In this case, the IRS sends you a letter and asks you to go to the IRS local office with certain documentation to explain various entries in your tax returns.
The IRS Field Audit
This type of audit is more common with larger businesses and corporations. A team from the IRS is sent to the taxpayer’s office to carry out a live audit of business processes and various tax related documentation. The IRS corresponds with the business and arranges a date to come and perform an audit. The IRS gives ample notice to allow you to prepare the various documentation requested and to enable you to arrange for resources, such as an employee, to guide the auditors through the process. The audit is performed to enable the IRS to better understand the way the business is operated, especially with more specialized and less common businesses. They can also perform the audit if they suspect any form of tax “exploitation.”