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San Antonio IRS Audit DefenseFor any taxpayer, the possibility of an IRS audit is worrisome. However, this can be a concerning issue for business owners, and especially so for those who own small businesses. If the IRS believes that mistakes were made on a business’s tax returns, the business may owe additional taxes, and penalties may also apply in some situations. Business owners who have been contacted by the IRS for an audit will need to understand how they should proceed, including the types of information they should provide and the steps they should take if they need to appeal the results of an audit.

Understanding IRS Audits for Businesses

The IRS may select a business for an audit if it believes that there are errors on one or more of the business's tax returns. These errors may be due to mistakes or because the IRS believes that information was reported incorrectly. Businesses that deal mostly in cash may be targeted for audits because the IRS believes that income may have been underreported. Deductions for business expenses are another common issue that can trigger an audit, and the IRS may look at expenses such as travel, meals, and entertainment.

Audits may be conducted by mail, but in most cases, the IRS performs field audits for businesses. In these cases, one or more IRS agents will visit the business’s location, speak to the owner or other personnel, and review business records. These audits can be very extensive, looking into all aspects of the business, reviewing its finances, and ensuring that information is reported correctly.

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texas tax consultantFor most people and businesses in the United States, taxes are unavoidable. Taxpayers who owe money to the IRS will not only need to pay any delinquent back taxes, but they may also be subject to failure-to-pay penalties. However, taxpayers may have options for penalty relief in some cases. By understanding the different types of tax penalty abatement options that may be available, a taxpayer can take steps to minimize the amount they may be required to pay.

First-Time Penalty Abatement and Reasonable Cause

Taxpayers may qualify for relief from tax penalties if they can show that they were unable to pay the amount owed due to issues that they had no control over. The most common form of relief is known as first-time penalty abatement. To qualify for this type of abatement, a taxpayer must not have had any tax penalties within the three years prior to the year for which they have received a penalty. They must also file all tax returns that are currently required or ask for an extension on a return that is due. Before receiving penalty abatement, they must either pay or make arrangements to pay any delinquent taxes. Because failure-to-pay penalties will continue to accrue until the taxes owed are paid in full, a taxpayer may want to wait until the amount due has been paid off before applying for first-time penalty abatement.

A taxpayer who does not qualify for first-time abatement may be able to receive penalty relief due to reasonable cause. In these cases, a taxpayer will need to show that they took all of the reasonable and necessary steps to pay taxes as required, but they were unable to pay the full amount owed through no fault of their own. Valid reasons that a taxpayer may be able to receive relief include an illness or injury that left them incapacitated, the death of a family member, or a fire or natural disaster. A taxpayer will need to provide evidence supporting their claim, such as medical records related to an injury or illness or documentation detailing natural disasters or other emergencies.

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San Antonio tax helpAs part of the ongoing effort to help people who have been affected by the COVID-19 pandemic, the federal government created a new program in 2021 to provide advance payments to those who can claim tax credits for children. While the Advance Child Tax Credit may provide benefits for some, it may also cause complications for certain taxpayers, including in cases involving divorce. Those who are currently in the middle of the divorce process or divorced parents who share custody of their children may need to take certain actions to prevent tax issues that could affect them when they file their tax returns in the future.

What Is the Advance Child Tax Credit?

Parents or others who are eligible to claim a child as a dependent may claim the Child Tax Credit when filing their annual tax returns. For the tax year of 2021, the amount of this credit has been increased to $3,600 for children who are 5 years old or younger as of December 31, 2021, or $3,000 for children who are between the ages of 6 and 17 as of December 31, 2021.

To provide additional financial assistance for families, the IRS will send half of the total amount of the Child Tax Credit to taxpayers as advance payments. These payments will be made in monthly installments between July and December of 2021. Those who claim children under the age of 6 as dependents will receive $300 per month per child, and those who claim children between the ages of 6 and 17 will receive $250 per month per child.

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Corpus Christi tax helpThere are a variety of divorce-related tax issues that can affect spouses, including addressing tax debts that accrued while a couple was married. When the IRS attempts to collect these tax debts, this may come as a surprise for a person who was not closely involved in managing their family’s finances while they were married or who was unaware of how their ex-spouse addressed income, deductions, and credits on a joint tax return. In these cases, innocent spouse relief may allow a person to be released from liability for some or all of their tax debts.

Qualifying for Innocent Spouse Relief

If the IRS determines that taxes are owed based on a joint tax return that was filed while a couple was married, a person may be relieved of the responsibility to pay the taxes owed and any applicable interest or penalties if they can show that the underpayment of tax was based on information provided by the other spouse. Innocent spouse relief will only apply to individual income taxes or self-employment taxes. To qualify for this form of relief, a person will need to demonstrate the following:

  • The joint tax return in question understated the taxes owed due to income that was not reported or incorrect tax deductions or credits that were claimed. For example, a business owner may have deducted certain expenses from their taxable income without actually paying these expenses.

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Texas IRS audit helpVirtual currencies such as Bitcoin and Etherium have become very popular over the last several years, and many people invest in these cryptocurrencies, trade them with others, use them to purchase goods and services, or receive them as income. Because of this increase in financial activity, the IRS has begun to pay more attention to these types of transactions, and it has increased the number of tax audits of people who buy, sell, or exchange virtual currencies. Users of cryptocurrencies will want to understand their requirements for reporting transactions and paying taxes to ensure that they can avoid penalties from the IRS.

How the IRS Addresses Cryptocurrencies

Even though virtual currencies are often used to purchase goods and services, they are not treated the same as currency issued by the United States or another country. Instead, they are considered to be property, and cryptocurrency transactions are taxed the same as those involving other forms of property.

When a person sells virtual currency, transfers it to someone else, or exchanges it for goods or services, they will be required to recognize any gains or losses, and capital gains taxes may apply to these transactions. The gain or loss will be the difference between the amount received in exchange for the virtual currency and the person’s basis in the cryptocurrency. The basis is the amount that was originally spent to acquire the virtual currency, including any fees or commissions. The basis may be adjusted based on certain types of expenditures, deductions, or credits.

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Corpus Christi IRS audit representationRecently, President Joe Biden unveiled a proposal for an increased budget for the Internal Revenue Service (IRS). This proposal would increase the agency’s funding by $80 billion over the next 10 years, allowing the IRS to conduct more tax audits and focus on collecting taxes owed by high-income individuals and businesses.

President Biden and the IRS are looking to reduce the “tax gap,” or the difference between what taxpayers owe and what is actually collected by the IRS. The IRS’s commissioner recently stated that the tax gap is close to $1 trillion per year. This gap is due in part to a reduction in the audits performed by the IRS over the past decade. Since 2012, the number of millionaires in the United States has doubled, but audits of these taxpayers have decreased by 72%. The IRS has also reported that the top 1% of income earners fail to report 20% of their income, resulting in an annual loss of $175 billion in tax revenues.

Who Will Be Impacted by Tax Audits?

If Congress approves Biden’s proposal and increases the IRS’s budget, the agency will have more resources to focus on collecting taxes owed by wealthy individuals and high-earning businesses. Technological improvements will provide the IRS with better access to financial information, allowing it to identify offenders who use complex schemes to avoid paying taxes.

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San Antonio tax help for IRS installment agreementsAs Benjamin Franklin once said, “In this world, nothing is certain except death and taxes.” Each year, millions of Americans are required to file income tax returns to determine whether or not they still owe the Internal Revenue Service (IRS) income tax or if they will be receiving a refund. According to the latest data from the IRS, there were nearly 158 million people who filed a tax return in 2020 for the 2019 tax year. The majority of tax filers receive a refund, but there are still plenty of people who file their taxes and have not yet satisfied their income tax liability. Nearly 30 million of those filers had tax due at the time of filing. When this happens, you will be required to pay this amount, or you could face consequences.

How to Deal With Income Tax That Is Due

If you have gone through the steps of completing your tax return, and you determine that you owe income tax, it is extremely important that you pay your taxes on time. If you do not pay on time, you will be subject to monetary penalties, and you could face further consequences. Here are a few ways you can deal with a tax bill that you cannot afford right away:

  • Use a short-term payment plan. A short-term payment plan is considered to be one that lasts for 120 days or less. This type of plan has no setup fee, but your account balance will continue to accrue penalties and interest until the balance is paid in full. 

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South Texas tax consultant

The usual tax season will be wrapping up soon, but that does not mean that the IRS will not be bothering you. Depending on how your returns look now—and even in prior years—you might find yourself dealing with an IRS tax audit anytime this year. Especially these days with so many people preparing their taxes on their own through apps and other software services, it can be easy to think that you might have made some mistakes on your returns that could call attention to them, raising numerous red flags in the eyes of IRS agents. Here is what you need to know about these audits and how you can avoid them.

What to Know About Tax Audits and How to Avoid Them

When the IRS audits your taxes, they are reviewing your tax returns and financial records to verify their accuracy. They want to check to see if you somehow did not pay the full amount of taxes due to them or if you failed to provide all the necessary and honest information to give them an accurate return. Some important facts to know about the auditing process include:

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San Antonio tax agent

Filing and paying taxes can be a complex matter, and it is understandable that many people put this process off until it is absolutely necessary. For most individual taxpayers, April 15 is the deadline to file an annual tax return and pay any taxes that they owe. In some cases, taxpayers do not file a tax return because they are concerned about penalties for delinquent back taxes, or they may be worried about the possibility of a tax audit if they did not file one or more tax returns in previous years. If you have any unfiled tax returns, you should be sure to understand the potential penalties that may apply and your options for resolving these issues.

Failure-to-File Penalties

If you do not file your tax return on time, and your return shows that you owe money to the IRS, you will be required to pay a failure-to-file penalty in addition to the taxes you owe. While this penalty usually will not apply if you do not owe any money or if you are eligible for a tax refund, you will not be able to claim your refund until your tax return is filed, and you will not be able to receive a refund if a tax return is filed later than three years after its original due date.

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