Income Taxes – Are You Likely to Get a Notice About Your Tax Return?
Posted on March 8, 2010 | No Comments
Benita Tyler asked:
Each year the IRS conducts a review of income tax returns and while some are randomly selected for an audit others are chosen specifically because they meet watch list criteria. However, just because your return falls into this category does not mean that there is cause for alarm. It is a good idea to know the type of returns that are on the IRS radar because it gives you a measure to base your record keeping practices and it increases your awareness of updates in tax law. Here are four types of returns that the IRS closely monitors.
Sole Proprietors
When you run your own company there is a layer of checks and balances that is missing in reporting income. Those who work for someone else have income reported throughout the year through payroll. Sole practitioners have more flexibility in reporting which results in closer scrutiny of income and expenses on their income tax return. The Internal Revenue Service is fully aware of this practice so they monitor the returns filed by self-employed persons very carefully. Be sure to report all sources of income from self-employment including amounts that are not reported on Form 1099.
Home-Based Business Owners
A work at home business owner is more likely to have a review of their taxes because many do not understand how to accurately claim the home office deduction and, as a result, they end up overstating their expenses. If you own a home-based business speak with a tax advisor to be sure that you understand what you can write-off and how to apply the rules to remain in compliance.
Independent Contractors
You may not run a company of your own but there are instances where you may receive payment as an independent contractor. When you perform work on the side and receive payment as a non-employee you will usually get a Form 1099 for the income that you earn. The IRS cross references all income that you include on your taxes against the records that companies report as payments to you. If you fail to include this information the IRS will adjust the taxable income and refund or tax due amount on your return.
Non-Filers
People who fail to submit income tax returns are also targets for the IRS. This is especially true of persons who receive taxable income during the year. Keep in mind that every company that pays you income is required to report those payments. So whether you file now or at a time in the future, the IRS has knowledge of the reported amounts. In many cases, they will calculate your taxes for you based upon the information that they have on file. If you owe then you can expect to receive a notice for the amount due, including fees for late filing and any interest that accrues.
For additional resources on tax filing requirements visit http://www.tbsusa.com and download the FREE audio to learn how to reduce income taxes from self-employment.
Create a video blog
Each year the IRS conducts a review of income tax returns and while some are randomly selected for an audit others are chosen specifically because they meet watch list criteria. However, just because your return falls into this category does not mean that there is cause for alarm. It is a good idea to know the type of returns that are on the IRS radar because it gives you a measure to base your record keeping practices and it increases your awareness of updates in tax law. Here are four types of returns that the IRS closely monitors.
Sole Proprietors
When you run your own company there is a layer of checks and balances that is missing in reporting income. Those who work for someone else have income reported throughout the year through payroll. Sole practitioners have more flexibility in reporting which results in closer scrutiny of income and expenses on their income tax return. The Internal Revenue Service is fully aware of this practice so they monitor the returns filed by self-employed persons very carefully. Be sure to report all sources of income from self-employment including amounts that are not reported on Form 1099.
Home-Based Business Owners
A work at home business owner is more likely to have a review of their taxes because many do not understand how to accurately claim the home office deduction and, as a result, they end up overstating their expenses. If you own a home-based business speak with a tax advisor to be sure that you understand what you can write-off and how to apply the rules to remain in compliance.
Independent Contractors
You may not run a company of your own but there are instances where you may receive payment as an independent contractor. When you perform work on the side and receive payment as a non-employee you will usually get a Form 1099 for the income that you earn. The IRS cross references all income that you include on your taxes against the records that companies report as payments to you. If you fail to include this information the IRS will adjust the taxable income and refund or tax due amount on your return.
Non-Filers
People who fail to submit income tax returns are also targets for the IRS. This is especially true of persons who receive taxable income during the year. Keep in mind that every company that pays you income is required to report those payments. So whether you file now or at a time in the future, the IRS has knowledge of the reported amounts. In many cases, they will calculate your taxes for you based upon the information that they have on file. If you owe then you can expect to receive a notice for the amount due, including fees for late filing and any interest that accrues.
For additional resources on tax filing requirements visit http://www.tbsusa.com and download the FREE audio to learn how to reduce income taxes from self-employment.
Create a video blog