Audit

KEEP YOUR AUDIT FEARS IN CHECK

Posted on Jun 16, 2017

Your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals some interesting and reassuring facts about the risk of an IRS audit. Audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been declining steeply over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller workforce. Audits target the rich. It’s a fact: IRS audits happen most often to the super-rich. The statistical chance of being audited increases dramatically for people of higher income levels. Missing data gets you audited. High income isn’t the only thing that gets you audited. Any missing data on your return can also trigger an audit, since the IRS usually receives a copy of the same tax forms you get every year. Standing out gets you audited. The IRS takes a close look at business expenses, charitable donations, and high-value itemized deductions. They have statistical data on what amounts are typical for various professions and income levels. If your return stands out from what is “normal,” it may be flagged for review by the agency’s computer system. More audits are done by mail. If you face an audit, it’s most likely that it will be done by mail. Only about one in four IRS audits are field audits conducted in person by an IRS agent. The most common issues, such as math errors or missing data, are done through mail correspondence. Most audits end up costing you. You can fight the tax law, but the tax law usually wins. Most people audited by the IRS end up owing additional tax. Only 11 percent of correspondence audits and 8 percent of field audits concluded with a “no change” finding in favor of the taxpayer. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Two facts about your chances of being audited

Posted on Jun 13, 2017

Your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals two interesting and reassuring facts about the risk of an IRS audit. One of these facts is that audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been declining steeply over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller workforce. Another fact is that IRS audits happen most often to the super-rich. The statistical chance of being audited increases dramatically for people of higher income levels. For example, filers that made near the average U.S. income only had a 0.4 percent chance of being audited. That frequency doubled once annual incomes reached $200,000, and doubled again at incomes greater than $500,000. By the time a person reports $10 million in income, they have a one-in-five chance of being audited, according to IRS statistics. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Audit proof your deductions

Posted on Mar 2, 2017

Tax audits still remain relatively rare, but should you face one, be prepared for questions. Tax authorities tend to deny everything and then make you prove that your deductions are valid. Here are some suggestions. To prove your deduction, most auditors are looking for two required documents. Receipts. The receipt should clearly show the company or entity, the date, the value of the activity, and a clear description of the activity. In the case of donations, the receipt should also have a statement that confirms you received no benefit in return for your donation. It should also state that you are not retaining part ownership of the donation. Proof of payment. You will need a canceled check, a bank statement, or a credit card receipt and related statement. Other proof. In addition to the above, there are certain deductions that require additional documentation. Here are the most common: Contemporaneous. Any proof of payment and receipts should generally match the date of the activity. The IRS and state agencies are quick to dismiss receipts that are obtained after the fact. A good rule of thumb is to ensure receipts and proof of payment are received at the time of the activity. If not, at least make sure you have receipts and payment proof within the tax year the deduction is taken. Mileage logs. You will need to show properly maintained mileage logs for business miles, charitable miles, and any medical mile deductions. Business records. You will need financial statements for any business-related activity with supporting documentation. Residency. If you live in multiple states or multiple countries, you may have to prove where you lived during the year. Keep records that show your physical presence to support your tax filings. Proof of non-reimbursement. If you claim any unreimbursed business expenses, many states are asking you to prove that you were not able to get these expenses reimbursed from your employer. The easiest ways to do this are to show a denied expense report or to get your employer to write a letter that confirms your expenses were not reimbursed. Those most impacted by this are musicians, barbers/hairstylists, construction workers, and anyone who uses their own tools to do their job for their employer. While you can never be completely sure you won’t face an audit in your lifetime, you now know which documents an auditor will want. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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