Top Four Tips For Taxpayers About The Sharing Economy And Taxes From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy which is proliferating through many online platforms like Uber, Lyft and Airbnb. Here are four tips you should know about […]
The IRS announced on February 5, 2019 that victims of the earthquake that took place on November 30, 2018 in Alaska may qualify for tax relief. Individuals who reside or have a business in the Municipality of Anchorage, Kenai Peninsula Borough and Matanuska-Susitna Borough have until April 30, 2019, to file certain individual and business tax returns and make certain tax payments.
IRS Tax Relief Details
The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. The current list of eligible localities is always available on the disaster relief page on IRS.gov.
The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after November 30, 2018 and before April 30, 2019, are granted additional time to file through April 30, 2019. This includes 2018 individual income tax returns and payments normally due on April 15, 2019. It also includes the quarterly estimated income tax payments due on January 15, 2019 and April 15, 2019 and the quarterly payroll and excise tax returns normally due on January 31, 2019.
In addition, penalties on payroll and excise tax deposits due on or after November 30, 2018, and before December 17, 2018, will be abated as long as the deposits were made by December 17, 2018.
Importance To Preserve Records
Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.
Essential Records to Have for a Tax Audit
If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.
We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper. By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.
So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:
- Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
- Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
- Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
- Written letters from charities confirming your monetary donations from the previous year.
- Receipts for business expenses you claimed.
- Mileage Logs for business use of vehicle.
- Entertainment and Travel Logs for business activities.
Develop And Implement Your Backup Plan
Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.
The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. And if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.
January 31 Deadline Looms for Forms W-2 and 1099-MISC
The possibility that the government shutdown will continue into next month resulting in many IRS employees not working to process Forms W-2 and Forms 1099-MISC has no impact on the January 31 deadline for filing these forms.
Filing Deadlines for Forms W-2 and Forms 1099-MISC
The 2018 Forms W-2 must be filed with the Social Security Administration (SSA) by January 31, 2019. Form 1099-MISC must be filed with the IRS by January 31st if non-employee compensation (NEC) is being reported on the form. If a Form 1099-MISC is not reporting NEC and is filed on paper, the filing deadline is February 28, 2019. If the Form 1099-MISC is not reporting NEC and is filed electronically, the deadline is March 31, 2019.
Regardless of the deadlines above, all of these forms must be given to taxpayers no later than January 31st. This filing deadline was made uniform under The Protecting Americans from Tax Hikes (PATH) Act. Prior law required that only W-2’s had to be provided to employees no later than January 31st with all other reporting forms (including the copies to IRS) due by the end of February. Failure to file these forms correctly and timely may result in penalties to the employer or payor.
Extensions of time to file Form W-2 may be requested. One 30-day extension to file Form W-2 may be requested by submitting a complete application on Form 8809, Application for Extension of Time to File Information Returns. Form 8809 must include a detailed explanation of why the additional time is needed and be signed under penalties of perjury. The IRS states that extensions are granted only in extraordinary circumstances or catastrophe.
Penalties for Failing to File Correct and Timely Forms 1099s
Information reporting penalties apply if a payer fails to timely file an information return, fails to include all information required to be shown on the return, or includes incorrect information on the return. The penalties apply to all variations of Form 1099. The amount of the penalty is based on when the correct information return is filed.
For returns required to be filed for the 2018 tax year, the penalty is:
- $50 per information return for returns filed correctly within 30 days after the due date, with a maximum penalty of $545,500 a year ($191,000 for certain small businesses);
- $100 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $1,637,500 a year ($545,500 for certain small businesses); and
- $270 per information return for returns filed after August 1st or not filed at all, with a maximum penalty of $3,275,500 a year for most businesses, but $1,091,500 for certain small businesses.
For purposes of the lower penalty, a business is a small business for any calendar year if its average annual gross receipts for the three most recent tax years (or for the period it was in existence, if shorter) ending before the calendar year do not exceed $5 million.
Persons who are required to file information returns electronically but who fail to do so (without an approved waiver) are treated as having failed to file the return unless the person shows reasonable cause for the failure. However, they can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.
The penalty also applies if a person reports an incorrect taxpayer identification number (TIN) or fails to report a TIN, or fails to file paper forms that are machine readable.
The penalty for failure to include the correct information on a return does not apply to a de minimis number of information returns with such failures if the failures are corrected by August 1st of the calendar year in which the due date occurs. The number of returns to which this exception applies cannot be more than the greater of 10 returns or 0.5 percent of the total number of information returns required to be filed for the year.
If a failure to file a correct information return is due to an intentional disregard of one of the requirements (i.e., it is a knowing or willing failure), the penalty is the greater of $530 per return or the statutory percentage of the aggregate dollar amount of the items required to be reported (the statutory percentage depends on the type of information return at issue). In addition, in the case of intentional disregard of the requirements, the $5 million limitation does not apply.
Under IRS Notice 2017-9, a safe harbor from penalties has been established for failure to file correct information returns and failure to furnish correct payee statements for certain de minimis errors. Under the safe harbor, an error on an information return or payee statement is not required to be corrected, and no penalty is imposed, if the error relates to an incorrect dollar amount and the error differs from the correct amount by no more than $100 ($25 in the case of an error with respect to an amount of tax withheld).
Automated Substitute For Return Program
When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.
The Stakes Are High!
A recent U.S. Government Accountability Office study showed that the IRS spends $267 million on underreporter matching programs, compared with the $4.2 billion it spends on audits. But automated information-matching programs return almost six times more revenue than audits. You can see why with fewer IRS agents and reduced budgets, the IRS will increasingly rely on technology-driven matching programs to bring in more tax dollars.
What Should You Do?
So if you receive one of these audit notices or the IRS is looking to assert penalties on late or incomplete 1099 filings, it is important that you don’t ignore it. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California defend you from the IRS. If you are involved in cannabis, check out what our cannabis tax attorneys can do for you.
Getting Ready For The 2019 Tax Filing Season
On January 7, 2019, the Internal Revenue Service (IRS) announced that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled despite the current government shutdown.
While full operation of the IRS cannot resume without appropriation of funds by Congress, Federal law (31 U.S.C. 1324) mandates that all tax refunds still due to taxpayers must be made through a permanent, indefinite appropriation. Thus while a significant number of IRS employees are furloughed and IRS functions severely limited under the current shutdown, taxpayers will still get their refunds.
The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the 2019 filing season will be included in an updated 2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.
April 15th Filing Deadline.
The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns but for everyone else, the filing deadline remains as Monday, April 15.
Since the IRS will begin processing tax returns on January 28th there is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns. Nevertheless, it makes sense to start organizing your information early and so when the IRS filing systems open on January 28th, you are ready to submit your tax return right away.
Refunds in 2019.
Choosing e-file and direct deposit for refunds remains the fastest way to file an accurate income tax return and receive a refund. The IRS still anticipates issuing at least 90%of tax refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers that could cause delay. Under the Protecting Americans from Tax Hikes (PATH) Act which took into effect starting with the 2017 Tax Filing Season, the IRS is required to hold refunds for tax returns which include a claim of the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15, 2019. Also consider that it would still take several days for these refunds to be released and processed through financial institutions, and factoring in weekends, the current government shutdown and the President’s Day holiday, taxpayers claiming these credits may not have actual access to their refunds until the later part of February.
Time Limits For Keeping Your Tax Records
Even though your 2018 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return, In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return. That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.
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