Why should I care about IRS and their Audit Process now, at this time of year? Historically, the IRS begins to hire their new employees at the beginning of their fiscal year which begins in the fall. I just can’t remember if it begins in September or ends in September. They will have completed their prospective new employee interviewing, offering positions to successful applicants and then start training those who have accepted their new assignments. Can you hear the Mission Impossible theme song playing here? There have been stories that the IRS IS hiring rebutted other stories saying the IRS is NOT hiring. Has there been a hiring freeze? Are new agents and auditors in training as you read this? Whether of not they are hiring new employees, IRS training is ongoing year in and year out. The whole point is, it doesn’t matter what percentage of the over 235 MILLION tax returns expected to be filed in 2011 are audited. If, I really mean WHEN, YOUR return is chosen, that is what is most important to you. It’s 100% for you!   My Experience When I took my first job as an Income Tax Auditor with the IRS, I had NO, absolutely NO, experience in taxes other than from preparing my own personal tax return. I had someone else prepare my return after I purchased my first house. That was new for me and I didn’t want to miss anything that would help me. After that one year, I returned to preparing my own return. Today, I feel I know the tax laws, but if I didn’t have my professional tax software to help crunch the numbers, I wouldn’t do my own. I am very pleased that my clients feel the same way and trust me to do my best for them. What experience did I bring to my new job as Tax Auditor? The IRS believed, based on my scores of an exam that was used in those years for Civil Service employment applicants, that I used good judgment in making decisions. That is the whole job of the tax auditor. They examine the facts, properly apply the tax laws and determine if the correct tax has been paid or not. The IRS taught me how to read a tax return. The IRS taught me what the tax laws were. The IRS taught me that ALL income is taxable except that which is excludable by the tax laws. The IRS taught me that NOTHING is deductible unless specifically allowed by the tax laws. The IRS taught me how to research the tax court cases. I learned which cases were in the favor of the IRS and which cases were not in favor of the IRS. Guess which ones the IRS uses. But they have to know all of those cases because guess which ones I want to use now that I am on “the outside.”   Now is the Time… So what? Why am I talking about this now? Because NOW is when IRS notices are being sent out. NOW is when new audits, NEW examinations will begin soon. This is November 1st, 2012. The only reason I date this is to show you the time line you need to know. Any 2011 return not already filed is just plain late. And chances are, unless you made a mistake that will be revealed in processing your tax return you will not hear from the IRS quite yet. Processing your return is not examining your return. Processing your return is simply receiving your return and issuing your refund or invoicing you for any balance due. IRS is quick to issue refunds first because they don’t want to pay your interest for waiting too long to give you back our own money. The statute of limitations is KEY. The IRS has only three years from the time you file your return (or April 15th if you file before the due date) to examine that return. That means the clock is ticking for them and for you, too. They don’t want to run out of time to assess any additional tax due. And if they don’t ASSESS (not collect) any additional tax due before April 15th, 2015 (2011 timely filed 4/15/12 plus 3 years) then heads will roll at the IRS. The IRS does have additional time to COLLECT taxes due, but that is a totally different discussion.   You Have Been Chosen… What you need to understand is that when the IRS chooses YOUR tax return, they believe there is an error for them to discover. It’s like a treasure hunt for them. Your return has been selected for potential of error. They just don’t know if there is an error or not. And if there is an error they don’t know for sure where it is. But they have a pretty good idea where it might be. They are going to ask you to PROVE that you were right in claiming those deductions or credits. They are going to ask you to PROVE that you claimed the correct amount. They will want to see your receipts. Do you still have them? Did you ever have them? Will every audit cost you money? Not necessarily. The job of the IRS Tax Auditor or Revenue Agent is to determine that the CORRECT amount of tax was paid. If you paid too much, the examination results in a refund due you. They get to write YOU a check. If you paid too little, the examination results in a balance due the IRS. You get to write the IRS a check. Third, the examination may result in no change. That would be best for you. 🙂 Will every audit cause you inconvenience? Yes, guaranteed. Don’t you have better things to do than dredge up old tax records 12-30 months after you filed your tax return? Will every audit cause you anxiety? Maybe Yes. Maybe No. Not necessarily so. That all depends on how well you kept your records, how closely your tax return relates to your tax records and how well you easily you can locate and provide those records (receipts) to the IRS to prove the items reported on your return. They should be the same. And you shouldn’t have to scramble to find them. It’s all about PROOF. And YOU are the one who must PROVE that your put the right numbers on the tax return you gave the IRS. You do sign that return under penalty of perjury, you know. I know I raised some questions here. I hope I also answered some questions. If you still have questions, please comment and add to the discussion.   To your lowest legal tax,   Nellie T Williams, EA  

“…I gotta be me, I’ve gotta be me what else can I be but what I am. I gotta be me.”   What else CAN you be? WHO else can you be but YOU? Why is it so important to be yourself? Because people do business with people they know. People do business with people they like. People do business with people the trust. Know… Like.. Trust.. When you know yourself, it is much easier for other people to know who you are, to know what you stand for. When you are in business, your objective is to make a profit. If profit is not your objective then you have a hobby and that is an entirely different subject with entirely different tax rules. When you are in business to make a profit, you need to have the right market to target. That market is your niche. Niche is a French word pronounced “neesh”. Americans, often pronounce this word as “nitch.” And that rhymes with RICH. What is it that YOU do better than anything else? What do you do that sets you apart from others in your industry? What are you expert at or in? That is YOUR unique brilliance. When I worked for the Police Department I was proud be helping “to serve and to protect.” I learned as a child that the policeman was my friend and that if I was ever in trouble, I should look for a policeman. In those years women were not part of the uniformed patrol. But I grew up to proudly wear that uniform for a few years.. Then I went to work for the Internal Revenue Service. Who wants to be freinds with the IRS man or woman? I would tell people that I worked for the largest accounting firm in the country. I learned how to hide what I did. Even today, the three letters “I R S” do not invoke a warm and fuzzy feeling for many people. But my own experience is what makes me unique! It is that experience and specialized knowledge that allows me to do what I do so well. I help people pay their lowest legal tax. I help people understand the tax rules so they can play that annual high-stakes tax “game” to win. I help you Bullet Proof Your Taxes! So, who is going to be unhappy with that? The IRS is happy. When you file a correct return and pay your proper tax to begin with, the IRS has when you file your return, the money they are entitled to. They save money by not having to spend any more time or attention on your tax return. But their happiness is not what motivates me. YOU are happy because you are saving money by paying only your fair share and not a penny more. You are sleeping soundly at night. I have taken what could have been a nightmare and removed the giant fear of an IRS tax audit. I help you plan in advance so when (not if) that scary invitation from the Internal Revenue Service comes inviting you to “Come on down!”, you know you have everything you need. This former nightmare has become just an inconvenience. Who would be unhappy with what I do? People who want to cheat on their tax returns often don’t like my truthful answers to their carefully crafted questions. People who don’t plan well enough to be able to pay their fair share and want to take deductions they can’t substantiate or prove don’t like me because I follow the rules I am have promised to follow. But those people are not MY people. They are not my ideal market. They don’t want what I have to offer. What do you have to offer? Who is your ideal market? If you need help answering these questions, I’d love to be the one to help you with that. Watch my website for that new opportunity to work with me in developing YOUR Unique Brilliance. I gotta be me…. You gotta be you…. because You are the only YOU there is. I’m all about saving you money. To you lowest legal tax, Nellie Williams, EA  

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Are you an EMPLOYER in the eyes of the INTERNAL REVENUE SERVICE? Do you have people that work for you in your business? Are you treating them like employees? What does that mean, Nellie? (“Whatcha talkin’ ’bout Willis?” from the TV Show Different Strokes) When you are the employer and have employees in your business to help you get your work done, your product out, your sales made, whatever they do to help you, YOU are the boss. YOU have EMPLOYER responsibilities and EMPLOYER tax liabilities. Congratulations! You are in good company. So many entrepreneurs go into business because they know how to do what they do. I was lucky to work for some high-powered organizations that showed me about what management really meant. Chain of Command! Employee Services Division, Personnel Department, and now called Human Resources.   What I’ve Learned I am happy to share with you some of the things I took with me into my own business. I don’t have all the answers, but I have some very important tips for you that will save your bacon! BEFORE you ever write a worker a paycheck, you need to protect this very important deduction for yourself! It is so simple. Have your worker fill out a form W4. This will give you their name, their address, and their very important and confidential SOCIAL SECURITY NUMBER. It is vital that you protect your payroll information from identify theft. It is also vital that you have this information before you pay them! What is their motivation to help you protect yourself and your wages deduction after they already have their money? As the employer you will be withholding taxes from their check. You will also have your own taxes to pay for the privilege of having someone work for you. YOU, the employer, and your employee share in paying the Social Security taxes composed of FICA (Federal Insurance Contribution Act) currently at 10.4% and MEDICARE at 2.9%. A self-employed person pays both halves of this combined tax or 13.30% total this year.   Payroll Holiday In 2012 Congress extended the “payroll tax holiday” they gave us in 2011 and the employees adjusted ‘half” right now is 4.2% FICA and 1.45% MEDICARE, totaling 5.65%. Your, the employer’s, half is 6.2% FICA and 1.45% MEDICARE. YOU pay to the INTERNAL REVENUE SERVICE all that you withhold from your employees AND your “matching” share. We don’t know if this will be available after December 31, 2012. But Wait, There’s more! PLUS you, the employer will pay FUTA (Federal Unemployment Tax Act) to the INTERNAL REVUE SERVICE and your state unemployment tax where applicable.   W-4 Many times the employee doesn’t know how to figure their withholding amounts or allowances. So let me give you my easiest rule of thumb. If you have a person who is not married and has no children, they count themselves as ONE. If that person has a child, then ADD ONE MORE. If that person has a home and pays a mortgage, they can ADD AN ADDITIONAL ONE MORE. So this person might have as many as THREE allowances. .But is it the correct number for them? The HIGHER the number of withholding allowances, the LESS INCOME TAX is withheld from their paycheck. Too high a number of allowances, or exemptions, may result in not enough tax being withheld. That can be a real financial nightmare on April 15th 🙁 If your employee is married, they may want to claim an allowance for their spouse. But if that married employee claims TWO and their spouse also claims TWO then between the two of them they have claimed FOUR exemption allowances and that can be too many resulting in too little INCOME TAX being withheld. I know this can be confusing, but it will become clearer to you as you work with their paycheck numbers.   HOW CAN I DO THIS? Here is a very simple example. Let’s say you will pay Jack $500 (gross or before deductions) a week. Each paycheck his share of Social security (both FICA and Medicare) is 5.65% or $28.25. If Jack is single and chooses ONE allowance, his federal tax withholding is $49.47 per check. Without any state income tax withholding his net check is $422.28. If you multiply these dollar amounts by 52, his annual gross wages total $26,000 and his federal income tax withheld totals $2572.44 or 10% of his wages. Will it be enough? If Jack chooses to use ZERO allowances, his federal tax withholding increases to $60.43 per week and his total for the 52-payday year is $3142.36. If Jack has a dependent and chooses to claim TWO allowances, his federal income tax withholding drops to $38.51 per check. And if Jack is married, he can choose to withhold at the married rate or at the higher single rate. There are SO many variables. I always advise checking your withholding mid-year in case you need to make adjustments or change your number of allowances claimed. You can do the math. Will you pay them once a week (weekly), every other week (bi-weekly) or twice a month (semi-monthly) like on the first and fifteenth of the month? Just remember that YOU have kept, or withheld, the taxes to be paid on behalf of your employee. If you think you can “borrow” these taxes to run your business in lean times, you are sorely mistaken. The amounts add up surprisingly quickly. Your employee is TRUSTING you to pay these taxes on their behalf. That is why the Internal Revenue Service calls these TRUST FUND taxes. There are tremendous penalties that can be assessed if your do not pay these taxes on time. So, do you know what time it is? The end of September is the end of the 3rd Payroll Quarter of the calendar year. Depending on your Employer’s Tax Liability, you may be allowed to pay your taxes when your tax return is due. If you owe more than $2500 with your return, you must deposit your employer’s taxes monthly. And if you have a large payroll you may fall into the 3-day deposit rule. In another blog I’ll talk about other important management duties. In the meantime, it is always about saving YOU money! To your lowest legal tax, Nellie Williams, EA