While you cannot fully control whether the IRS audits you come tax season, there are measures you can take in an effort to lower your chances of being audited. It all starts with hiring a reputable tax accountant. If you prefer to file your own taxes, make sure you are diligent and extra careful. But what does this mean? Basically, you should avoid making the following common mistakes that tend to result in an audit from the IRS.
Depreciation is an annual tax deduction that allows small businesses to recover the costs of certain property that decreases in value over its lifetime. It's an allowance for the wear and tear, deterioration or obsolescence of the property.
When bills come for insurance premiums and property taxes, your mortgage lender or servicer can use money set aside in an escrow account to cover the payments. The account is funded by small sums added to each regular mortgage payment. Then, when your insurance or property tax bill comes due, the lender uses the escrow funds to pay it. That way, you never have to pay a large bill in one shot. If you're in a community with a homeowner's association, you can add those fees to the escrow account to further streamline your monthly budget.
With the flexibility offered by an outsourced chief financial officer, you'll have access to expertise when you need it instead of committing to hiring a full-time in-house resource. That's why some businesses are turning to outsourced CFOs. When you do, you'll receive guidance pertaining to finance, business, accounting, and operations.
If you find yourself short-staffed, there's no harm in calling a former employee who has retired. You won't jeopardize your pension plan's tax status if you rehire retirees. Nor is it a problem if you permit distributions of retirement benefits to employees who hit the age of 59 1/2 or your plan's normal retirement age, even if they don't intend to quit anytime soon.
Under the Foreign Account Tax Compliance Act, U.S. taxpayers holding financial assets outside the U.S. must report those assets to the IRS using Form 8938, Statement of Specified Foreign Assets, which is attached to your annual return.
Did a close relative die and not leave a will? You will face some complexities, but you can get through them if you know the rules.
The most important first step to working with independent contractors is to understand how they differ from your employees. An independent contractor is an individual who performs services or work for your firm but also may perform similar services elsewhere. They are not employees of your nonprofit, and you are not responsible for paying their Social Security or Medicare taxes. The IRS has strict guidelines about what constitutes an independent contractor relationship and when it crosses the line into an employer–employee relationship.
Nobody likes dealing with the IRS, but if you have to do it, it's nice to have an expert in your corner. That's why you have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. It's one of the fundamental rights of all taxpayers as outlined in the Taxpayer Bill of Rights. If you cannot afford representation, you have the right to seek assistance from a Low Income Taxpayer Clinic.
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