President Biden is proposing to increase IRS funding by $80 billion over the next ten years to aid in collecting taxes from America’s wealthiest individuals and businesses. The proposal aims to increase audits for individuals earning $400,000 or more in order to “ensure that the wealthy are paying their fair share” of taxes. The goal with the increase in funding is to generate $700 billion in revenue by the end of the decade. On the outside, it sounds like a good way to help fund the trillion dollars being allocated toward the infrastructure project. But, how can we make sure that the average American won’t increase their chances of being audited?
There is no debate that the IRS is severely underfunded, however. Even though counterintuitive, this can be a good thing from the perspective of our clients. From 2010 to 2020, the agency lost over 33,000 employees, with the number of millionaires nearly doubling during that same time period. With the increase in spending, the IRS will hire nearly 78,000 new employees over the next decade- with many delegated to tax enforcement and audit procedures. Although the goal of the agency is to decrease the levels of tax evasion among the wealthy Americans, there is no guarantee that the increase in spending will play out this way. The increase of new IRS employees will likely increase the cases of audits in Americans with an average income. With the additional employees, there will be an increase in audits overall, since new recruits have to gain experience in the audit field. In reality, the wealthier individuals and businesses have the resources for effective defense against audits, while the average citizen may not have the same resources to protect themselves from an audit- making the average American a likely target for upcoming audits.
It’s a common occurrence for the IRS to abuse their power and coerce individuals into paying more taxes than they owe. As a tax resolution firm, we see this very often. We often see audits where a client’s deductions are disputed, and the client ends up with a multi-thousand dollar bill. The occurrence of these scenarios don’t exclusively affect the ultra-wealthy. Individuals, and especially businesses, who do not have the means to have a bookkeeper or an accountant, face an increased chance of losing audits. In general, having proper documentation and representation to dispute audit allegations increases the likelihood of winning the audit. Hence why individuals and businesses with greater means are less likely to lose an audit. Newly hired IRS auditors, which will represent nearly half of IRS staff, likely won’t be handling these types of audits.
An increase in workers is going to increase the overall occurrence of audits- all around. Regardless of how much you or your business makes, you will have an increased chance of getting audited. So what should you do if you get a “notice of discrepancy” letter in the mail from the IRS? Don’t accept the proposal by simply paying the bill- no matter how small. If you are in compliance, provide the proper documentation, and dispute against the discrepancy. Otherwise, there will be a possibility of further investigations into previous years. That means more audits, and a larger bill. What might be a small proposal of discrepancy, can possibly grow into multiple years of audits.
Take for example our client, who had her business deductions dismissed by the IRS. In March 2019, she received the CP2000 letter claiming that she had a tax discrepancy of $11,000 from December 2016. With penalties and interest accumulating over the three years, the bill grew to $15,000. She is a classic example of the IRS chasing after regular Americans, not the ultra-wealthy. Our client only had a combined AGI of $90,000 with her husband. Her story is similar to what we see all the time: a new IRS agent conducted the audit, and misappropriated her rightful deductions, and now the taxpayer is faced with an inflated bill. After coming to us, we settled with the IRS and the agent conducting the audit, provided documentation, and eventually eliminated her proposed tax liability altogether. Not only did she win the audit, but she is also spared from any additional audits for previous years. With some help, she stopped the audit abuse at the hands of the IRS.
With the increase in IRS spending, please make sure that you or your business are in compliance with the agency. If you own a business, it is important that your business finances are well organized in the event of an audit. We recommend hiring a bookkeeper or accountant to help keep your business in compliance and increase your chances of success in winning an audit, if one were to ever occur. If you find yourself with a CP2000 letter, or notice of discrepancy letter, do not hesitate to reach out to your local tax professional. No matter how small the amount, it is important that you understand your rights.
These Tax Organizers are designed to help you gather the tax information needed to prepare your personal income or business tax return for 2018. A Tax Organizer is a great tool to help you reduce your taxes or increase your tax refund.
2018 Basic Organizer (4 Pages) –This organizer is suitable for clients that are not itemizing their deductions and DO NOT have rental property or self-employment expenses.
2018 Full Organizer (8 Pages) – This organizer includes the information included in the basic organizer, plus entries for itemized deductions, rental properties, and self-employment expenses.
2018 Basic Organizer (4 Pages) – This organizer is suitable for clients with self-employment income, partnership income, and corporation income. (Schedule C, 1065 & 1120s)
We can help you file your tax returns. Schedule Online.
The following are examples of supporting documentation:
Call us today at 301-962-1700.
Beginning in 2018, The IRS started mailing to Taxpayers owing more than $51,000.00 a notice called "CP508C - Notice of Certification of your Seriously Delinquent federal tax debt to the State Department".
If you owe taxes over $51,000, the IRS may inform the State Department which can then revoke your passport. And you might not even know until you get to the airport.
"On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted Section IRC §7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers owing more than $51,000.00 and certifying the Taxpayer as “Seriously Delinquent. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a Taxpayer with seriously delinquent tax debt. (per IRS)"
It is estimated that about 270,000 Taxpayers are about to receive Notice CP508C in 2019.
Before denying a passport, the State Department will hold the application for 90 days to allow a citizen to:
You have established a collection alternative with the IRS and accepted. The IRS must give notice to the State Department reversing the certification if:
Once the (IA) and (OIC) are accepted or Innocent Spouse Relief request is pending, the IRS will mail the “Reversal” notice to taxpayer CP508R and to the State Department.
If you have questions or concerns about the passport revocation, please call Mendoza, Silva & Company today!
We are here to help.
The child tax credit increases in 2018 to $2,000 (up from $1,000) with up to $1,400 being refundable. The earned income threshold is reduced to $2,500 (down from $3,000 in 2017) allowing more taxpayers to qualify for the credit. A child has to be under the age of 17 and have a valid Social Security number issued before the return due date to qualify for the credit.
In addition, a non-refundable tax credit of $500 is available for each non-child dependent that does not qualify for the child tax credit. The AGI thresholds at which the credit begins to phase out are substantially increased: to $400,000 for married filing jointly and $200,000 for all other taxpayers.
Article Highlights:
If you are among the many taxpayers renting your first or second home using rental agents or online rental services that match property owners with prospective renters, such as Airbnb, VRBO and HomeAway, then you should know the IRS has special rules related to short-term rentals.
When property is rented for short periods, special (and sometimes complex) taxation rules come into play, which can make the rents excludable from taxation; other situations may force the rental income and expenses to be reported on Schedule C (as opposed to Schedule E). If you have been renting your home or second home for short periods of time, here is a synopsis of the rules governing short-term rentals so you can prepare yourself for the upcoming tax season.
When extraordinary services are provided, the rental is treated as a trade or business and reported on Schedule C regardless of the average rental period. However, it would be extremely rare for this to apply to short-term rentals of your home or second home.
A loss from this type of activity, even when reported on your Schedule C as a trade or business, is still treated as a passive activity loss and can only be deducted against passive income. The $25,000 loss allowance that applies to some Schedule E rentals is not available for rental activities reportable on Schedule C.
It is important that you keep a record of not only the rental income from each tenant but also the duration of each rental, so the average rental term for the year can be determined. If you have questions about your rental activities, please give this office a call.
El programa de radio se detalla sobre el reembolso de impuestos del IRS a familias que acaban de recibir su residencia “Green Card”. En lay fiscal existe la oportunidad a nuevos residentes recibir un reembolse de impuestos hasta $13,000 por familia. Para cualificar para esta oportunidad, el contribuyente debe de haber preparado impuestos por tres años antes de recibir la residencia. Durante los tres años del impuestos, el contribuyente por falta de el estatuss de residencia no calificaba para ciertos crédito y beneficios otorgados para residentes of ciudadanos. La ley fiscal le da la oportunidad para retroactivamente pedir los beneficios perdidos durante el periodo de no tener la residencia. Para más información llamamos para una consulta.
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If you're like most taxpayers, you find yourself with an ominous stack of "homework" around TAX TIME! Pulling together the records for your tax appointment is never easy, but the effort usually pays off in the extra tax you save! When you arrive at your appointment fully prepared, you'll have more time to:
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Choosing Your Best Alternatives - The tax law allows a variety of methods of handling income and deductions on your return. Choices you make as you prepare your return often affect not only the current year but future returns as well. Topics these choices relate to including:
Where to Begin? Preparation for your tax appointment should begin in January. Right after the New Year, set up a safe storage location, such as a file drawer, cupboard, or safe. As you receive pertinent records, file them right away, before you forget or lose them. Make this a habit, and you'll find your job a lot easier on your appointment date. Other general suggestions to prepare for your appointment include:
Accuracy Even for Details - To ensure the greatest accuracy possible in all detail on your return, make sure you review personal data. Check name(s), address(es), social security number(s) and occupation(s) on last year's return. Note any changes for this year. Although your telephone numbers and e-mail address aren't required on your return, they are always helpful should questions occur during return preparation.
Marital Status Change - If your marital status changed during the year, if you lived apart from your spouse or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce or property settlement agreements, if any, to your appointment. If your spouse passed away during the year, you should have a copy of his or her trust agreement or will available for review.
Dependents - If you have qualifying dependents, you will need to provide the following for each (if you previously provided us with items 1 through 3 you will not need to supply them again):
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For anyone other than your child to qualify as your dependent, they must pass five strict dependency tests. If you think one or more other individuals qualify as your dependents (but you aren't sure), tally the amounts you provided toward their support vs. the amounts they provided. This will simplify the final decision.
Some Transactions Deserve Special Treatment - Certain transactions require special treatment on your tax return. It's a good idea to invest a little extra preparation effort when you have had the following transactions:
If you have questions about assembling your tax data prior to your appointment, please give this office a call.
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From time to time, the owner of a small business will purchase equipment, office furnishings, vehicles, computer systems, and other items for use in the business. How to deduct the cost for tax purposes is not always an easy decision because there are a number of options available, and the decision will depend upon whether a big deduction is needed for the acquisition year or more benefit can be obtained by deducting the expense over a number of years using depreciation. The following are the write-off options currently available.
Depreciable Item | Class Life | Depreciable Life |
Office Furnishings | 10 | 7 |
Information Systems | 6 | 5 |
Computers | 6 | 5 |
Autos & Taxis | 3 | 5 |
Light Trucks | 4 | 5 |
Heavy Trucks | 6 | 5 |
For some individual taxpayers, the alternative minimum tax (AMT) may be a concern. Bonus depreciation and Sec. 179 expensing are not preference items, and therefore their use will not trigger an AMT add-on tax. However, the difference between 200% MACRS depreciation, if claimed, and 150% MACRS depreciation is a preference item for AMT and could cause or add to the AMT tax
Tax Season is Here. We can help you with your tax preparation. Call us and schedule an appointment today! .....
Open Monday through Friday 9-7pm and Saturdays from 9-6pm. Our professionals are licensed and in good standing with Maryland Department of Licenses and Regulations.
You will need the following personal information to do your taxes;
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Tax Documents for the current year;
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Before you begin to organize your documents download the attached organizers to help you maximize your refund.
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Note: The is one of a series of articles explaining how the various tax changes made by the GOP's Tax Cuts & Jobs Act (referred to as the "Act" in the article), passed late in December 2017, might affect you and your family in 2018 and future years, and offering strategies you might employ to reduce your tax liability under the new tax laws.
For years, taxpayers have been able to deduct home mortgage interest on their primary and second homes as an itemized deduction, subject to certain limitations. The interest deduction was limited to the interest on up to $1 million of acquisition debt and $100,000 of equity debt.
Acquisition debt is the debt incurred to purchase, construct or substantially improve a taxpayer's principal or second home. So when you purchased your home, that original loan was acquisition debt, and if you later borrowed additional money that you used to add a room, pool, etc., that loan was also acquisition debt. However, if the total of all of your acquisition loans exceeded the $1 million limit, then the interest on the excess debt over $1 million was not deductible as acquisition debt interest.
Consumer debt interest, such as interest on auto loans and credit card debt, is not deductible as an itemized deduction. However, years ago, Congress allowed homeowners to deduct the interest on up to $100,000 of equity debt. This allowed homeowners to use the equity in their homes for any purpose and deduct the interest on the equity debt as an itemized deduction.
Well, That Has All Changed. For 2018 through 2025, the new tax law reduces the $1 million limit on home acquisition debt to $750,000 ($375,000 for married separate filers), except that the lower limit won't apply to indebtedness incurred before December 15, 2017. That is, the $1M cap continues to apply to acquisition mortgages on primary and second residences that were already in existence prior to December 15, 2017, as well as for taxpayers who entered into a binding written contract before that date to close on the purchase of a principal residence before January 1, 2018, and who purchase that residence before April 1, 2018.
The Equity Debt Interest Deduction Is No More – Congress has yanked the rug out from under those with equity debt on their homes. Beginning in 2018, interest paid on equity debt will no longer be allowed as a deduction, regardless of when the debt was incurred.
This seems a little unfair and can have an adverse impact on individuals who used their home as a piggy bank for personal expense purposes.
Whether any of this makes any difference in light of the new higher standard deduction amounts for 2018, and whether you should be looking for ways to pay down the equity debt, will depend upon the amounts of your other itemized deductions. Please call this office if you have any questions.
Mendoza & Company, Inc. is a full-service accounting, Payroll, and Tax Resolution firm in Bethesda, MD and Miami, FL. As a client, you gain a professional team with expertise in multiple fields, providing you the right advice to strengthens your organization and long-term goals.