I am a former IRS Agent of 10 years who has been in private practice of tax law and IRS Tax resolution for 38 years. My company has represented thousands of taxpayers before the IRS over the last 29 years.
Life Insurance Proceeds Life insurance proceeds that are paid to you as a result of the death of an insured individual are not taxable unless the policy is passed on to you at a particular cost. This happens even if the proceeds were paid under an accident, health insurance policy, or a donation. On the other hand, interest income obtained because of life insurance may be taxed. Make sure to find out which category the proceeds fall under.
Since the technological advancements and software programs are there to make the tax filing simpler and more convenient, there is obviously no reason to file income tax return in the traditional way. As you opt for online income tax filing alternative, you are guided step by step. There is nothing which you find difficult to follow.
The IRS has a different philosophy in the hiring of IRS Revenue Agents. In the past they would hire right out of school. Their training was all on the job. They were very green and it was obvious they were not schooled into the world of business. Today is a much different story.
When it comes to completing your income tax return online, you may get hold of certain things like your W2's, 1099s, important receipts, and other necessary documents with a view to make your process simpler. So, when you are required to mention details, the necessary information will be available in these documents.
We have not seen any major changes as to what the tax audits and issues are for. It is business as usual.
Here is the new trending that is taking place as to your risk of an IRS Tax Audit: 1. Individual Income Tax Returns: The overall audit rate of only 1.1% for all individual returns 2. If you report income on a Schedule C Individual Income Tax Returns: Your IRS tax audit rate is anywhere from 2.9-4.7% vs. the overall audit rate of only 1.1% for all individual returns. Thus a Schedule C will increase your audit risk 3-4 times. 3. The audit rate for partnerships and S Corporations are at.4% ( less than 1 %). The message here is that you should strongly consider conducting your present Schedule C activity in either an S corporation or a partnership. Transitioning to an S-Corp or partnership form of doing business is very easy and is almost always tax free. 4. If your total income is over $1M: you have a 1 in 12 chance of being audited now, vs. a 1 in 15 chance in 2009. This is huge. The issues that seem to come up in these exams are: a. Basis in pass through entities to be able to take losses. If you do not have basis, you cannot take the loss, even if the K-1 shows that a loss has been allocated to you. You must have sufficient money in the venture or be liable for a sufficient amount of the venture's debt in order to take losses. b. Passive activities vs. non-passive activities. You cannot deduct passive activity losses against another business or investment income. It is important to be able to document your level of activity in those businesses that are throwing off losses to your personal return to show that you are active in them. If not, you may not be able to use the losses. c. Capital loss deductions for loans to close relatives that may be disguised gifts instead. d. Documentation for large charitable gifts. Asset size increases your chance of being audited. e. Officer/Owner perks Large Corporations Tax Audit Risks Gross Income 10M-50M 13.4% Gross Income 200M-500M 16.1% Gross Income 5B-20B 45.3% Gross Income 20B and up 98.0%
Please note that the IRS service center will more likely process your e-filed return because they need not type your whole data and information. If you expect receiving refund, it will also get processed sooner if you prefer getting your money online. You need not worry about missed deadlines because you do not have to send your return by mail. At the end of the process, you only need to click a button to send your income tax return electronically.
Life Insurance Proceeds Life insurance proceeds that are paid to you as a result of the death of an insured individual are not taxable unless the policy is passed on to you at a particular cost. This happens even if the proceeds were paid under an accident, health insurance policy, or a donation. On the other hand, interest income obtained because of life insurance may be taxed. Make sure to find out which category the proceeds fall under.
Since the technological advancements and software programs are there to make the tax filing simpler and more convenient, there is obviously no reason to file income tax return in the traditional way. As you opt for online income tax filing alternative, you are guided step by step. There is nothing which you find difficult to follow.
The IRS has a different philosophy in the hiring of IRS Revenue Agents. In the past they would hire right out of school. Their training was all on the job. They were very green and it was obvious they were not schooled into the world of business. Today is a much different story.
When it comes to completing your income tax return online, you may get hold of certain things like your W2's, 1099s, important receipts, and other necessary documents with a view to make your process simpler. So, when you are required to mention details, the necessary information will be available in these documents.
We have not seen any major changes as to what the tax audits and issues are for. It is business as usual.
Here is the new trending that is taking place as to your risk of an IRS Tax Audit: 1. Individual Income Tax Returns: The overall audit rate of only 1.1% for all individual returns 2. If you report income on a Schedule C Individual Income Tax Returns: Your IRS tax audit rate is anywhere from 2.9-4.7% vs. the overall audit rate of only 1.1% for all individual returns. Thus a Schedule C will increase your audit risk 3-4 times. 3. The audit rate for partnerships and S Corporations are at.4% ( less than 1 %). The message here is that you should strongly consider conducting your present Schedule C activity in either an S corporation or a partnership. Transitioning to an S-Corp or partnership form of doing business is very easy and is almost always tax free. 4. If your total income is over $1M: you have a 1 in 12 chance of being audited now, vs. a 1 in 15 chance in 2009. This is huge. The issues that seem to come up in these exams are: a. Basis in pass through entities to be able to take losses. If you do not have basis, you cannot take the loss, even if the K-1 shows that a loss has been allocated to you. You must have sufficient money in the venture or be liable for a sufficient amount of the venture's debt in order to take losses. b. Passive activities vs. non-passive activities. You cannot deduct passive activity losses against another business or investment income. It is important to be able to document your level of activity in those businesses that are throwing off losses to your personal return to show that you are active in them. If not, you may not be able to use the losses. c. Capital loss deductions for loans to close relatives that may be disguised gifts instead. d. Documentation for large charitable gifts. Asset size increases your chance of being audited. e. Officer/Owner perks Large Corporations Tax Audit Risks Gross Income 10M-50M 13.4% Gross Income 200M-500M 16.1% Gross Income 5B-20B 45.3% Gross Income 20B and up 98.0%
Please note that the IRS service center will more likely process your e-filed return because they need not type your whole data and information. If you expect receiving refund, it will also get processed sooner if you prefer getting your money online. You need not worry about missed deadlines because you do not have to send your return by mail. At the end of the process, you only need to click a button to send your income tax return electronically.
About the Author:
Harris Smith is a writer on personal finance education. Her article tackles the pros and cons of home equity line of credit . Debt Consolidation Program Resource and Guide.