How to Easily keep Tax Records for as long as you need them. And be ready anytime for the Inquiring Mind of the IRS. The IRS has more than one employee. They have more than one division. Do they have more than one mind? They do have one mission. The mission of the Examination Division is to determine if the correct amount of tax was paid. When it comes to your tax returns, IRS has certain requirements. My Top 5 Tips are simple. Here is a recap of the 5 tips I gave you in my last blog of 2014.

Keep your copies of your tax returns FOREVER. ..
The Internal Revenue Service has THREE YEARS time to examine your tax records. This is called the Statute of Limitations for examination or audit. ..
Your state has MORE time. Arizona has ONE more year. California has TWO more years. Which state are you in? How much longer do they have to look at your tax records? ..
For calendar-year tax return items, you must keep your records AT LEAST five years. But some records need to be kept even longer. ..
Don’t be in too big a hurry to get rid of the paperwork. Keep the original documents. Scan them. Use a cross-cut shredder to really destroy the no-longer needed documents.

Now, I’ll share HOW to easily use a multi-drawer cabinet. Once you design your own system, it will save you time, money and tax headaches…

A plastic cabinet is convenient, but not secure like a locking cabinet. How many drawers does it have? Have one drawer for each of the 5 prior years plus a drawer for the current year. Permanent files will take up more space over time, so you may want a more secure place for your long-term permanent file. …
Label the drawers 2015 (current paperwork for the coming year.) 2014, 2013, 2012, 2011 and 2010 for the years still open for audit. Look at the date you filed your 2010 tax return. Count forward five years to determine when (what date) it is actually safe for you to begin shredding. …
In each of the 5 years’ drawers keep your tax return for that year. Keep a small box for your income records, your expense receipts and records of anything you sold in that year. …
Keep a file of paperwork related to assets or investments you still own. You will use this “basis” information In the year you sell an asset or investment. It will help your determine the gain or loss on the sale. In the year of sale, that paperwork will go into that year’s tax box.Because state returns are generally based on the federal return, keep the IRS return and the state return’s documents together. …
Save the tax returns in your permanent drawer. Shred the documents that are related to items only pertinent to a single year’s tax return for which the statute of limitations has already expired. For 2010 returns timely filed in 2011, the IRS statute “tolls”, or expires, in year 2014. The Arizona statute for 2010 returns runs out in 2015. The California 2010 tax return expires in 2016.

… If you have been flirting with tax evasion or tax fraud, the IRS has more than three years to look at your return. They have FOREVER to look at a fraudulent tax return. You be the judge. Let your conscience be your guide. Stay out of tax jail. Be honest with yourself and on your tax return. Have a happy year!

Welcome to the tax year home stretch

By Nellie Williams on

December 11, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS Tax Problems, Tax Audit, Tax Audit Help

This is NOT the 7th inning stretch that we are so familiar with in baseball. We are rounding third base and running home in the last month of the last quarter of this calendar year. Will you be the winner in this tax game for 2014? Will the IRS be the winner when they select tax returns for examination? Did you realize that the returns the IRS will be selecting in 2015 will not be the 2014 tax returns. Most of the tax returns they will be selecting tax in 2015 will be tax returns for the year 2013. Do you know where your 2013 tax return is? Do you have a method for saving the records you used for that prior year’s return? Do you know how long to keep those records? The answer to these big questions is just one of the areas I cover in my Audit Proofing Coaching program available in January. First enjoy your holidays. Then we can get to work to protect you from a tax audit. Your 2013 tax return is also the starting point for preparing your 2014 tax return. What do you want to make sure you finish before December 31st? Here are THREE TIPS direct from the Internal Revenue Service for Individual Retirement Accounts. “1. Know the limits. You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014. “2. Avoid excess contributions. If you contribute more than the IRA limits for 2014, you are subject to a six percent tax (emphasis, mine) on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return, including extensions. “3. Take required distributions. If you’re at least age 70½, you MUST take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax (emphasis, mine) on the RMD amount you failed to take out. If you turned 70½ in 2014 and delay your first annual RMD until the year AFTER you turn 70½, you must take that first RMD by April FIRST, 2015 (not the fifteenth) PLUS you must take the 2015 annual RMD before December 31, 2015. Watch the timeline to avoid the penalties and make the most of your retirement savings.

Your Rights as a Taxpayer, Part Three

By Nellie Williams on

November 25, 2014

- IRS Audit, IRS Audit Help, IRS Problems, IRS Tax Problems, Tax advisor, Tax Audit Help

Young Woman On The Telephone And Computer

Today I will finish the second half of what we might call the IRS Taxpayer Bill of Rights. They call it the Declaration of Taxpayer Rights. If you want to see the IRS Mission Statement, go back to the earlier two articles on this topic. I became The IRS Insider based on my personal experience as an income tax auditor. The IRS is a BIG organization. My perspective is limited to the Examination and Appeals Divisions. I have colleagues who help me and help you with the Collections side of the big tax machine. Remember, every employee of the government is a person, an individual with a job to do. Are they just like you? Does one of you throw your weight around? Can you follow the Golden Rule and still protect yourself? Yes, I believe you can. The Golden Rule is NOT “He who has the gold, rules.” The Golden Rule is NOT “Do unto others before they do unto you.” The Golden Rule is “Treat others the way you would like to be treated.” You can always catch more flies with honey than you can with vinegar. The very next right is all about the gold, IRS Collections.

“5. Payment of Only the Correct Amount of Tax. You are responsible for paying only the correct amount of tax due under the law — no more, no less. If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.

“6. Help With Unresolved Tax Problems. The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem. For more information, call toll free 1-877-777-4778 (1-800-829-4059 for TTY/TDD) or write to he Taxpayer Advocate at the IRS office that last contacted you.

“7. Appeals and Judicial Review. If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case. You may also ask a court to review your case.

“8. Relief From Certain Penalties and Interest. The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. We will waive interest that is the result of certain errors or delays caused by an IRS employee.”

Often I quote Justice Learned Hand, judge of the US Court of Appeals, who said,

“Anyone may arrange his affairs so that his taxes shall be as low as

possible; he is not bound to choose that pattern which best pays the

treasury. There is not even a patriotic duty to increase one’s taxes.

Over and over again the Courts have said that there is nothing sinister

in so arranging affairs as to keep taxes as low as possible. Everyone

does it, rich and poor alike and all do right, for nobody owes any

public duty to pay more than the law demands.”

End of Month – Employer’s Quarterly Reports are Due

By Nellie Williams on

October 29, 2014

- Deductions, IRS Audit, IRS Audit Help, IRS penalties, IRS Problems, IRS Tax Problems, Money, Tax advisor

The last day of the month of October is the day that 3rd Quarter Employer’s Payroll Tax reports are due. The third quarter covers the payroll months of July, August and September. If you are an employer, you are expected to deposit the taxes you withhold from your employees on a timely basis. If you owe less than $2,500 total for the quarter, you may make this payment with your Form 941 report. This report includes both Federal Income Taxes withheld AND the combination of social security and medicare taxes withheld (known as FICA) from the employees’ paychecks PLUS the employer’s matching FICA amount. If you owe less than $2,500, you could be a business with a small number of employees. If you are a business that will owe more than $2,500 for the three months in the quarter, you must pay your “trust fund” taxes on a monthly basis. The taxes you withhold from your employees are called “trust fund” taxes because your employees are trusting you to pay the taxes withheld from their checks to the Internal Revenue service for their individual tax benefit. If you do NOT withhold the proper amount of social security or medicare taxes from your employees’ checks, you could be responsible to pay what should have been withheld. If you do not pay what you are responsible for paying, you could (you probably will) be charged with penalties. Those penalties can be substantial and they can be BIG. Do not run your business on your employee’s monies. That decision can put you out of business. If you are trusting one of your employees to make these deposits, make sure they are being made. Trusting an employee who is not trustworthy can also put you out of business. If an employee seems so dedicated to their job that they do not take any time off this could be a warning sign to you. The employee who refuses vacation and sick leave could feel they must be there every minute of every day to make sure their deception, their theft from you, remains undetected. Yes, we must trust our employees, but we must also be vigilant in conducting our businesses. The newspapers are full of stories of big-hearted people who are taken advantage of by people with self-centered ulterior motives. Are YOU are the one to sign the reports, to sign the checks, to decide who gets paid this month and who must wait if there is not enough money to pay all of the bills? Do not decide to make the IRS wait for these taxes. The IRS could decide to give you (the decision maker) more time, jail time that is. That can put you out of business, too. It is not always easy being the business owner. You are the one that can put “The Buck Stops Here” sign on your desk. I wish you only the best in your business. I wish you only the best when it comes to your tax situation. If you need help, consult your tax professional.

Records! Your Best IRS Audit Defense

By Nellie Williams on

October 23, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS penalties, IRS Problems, IRS Tax Problems

I’m not talking vinyl music platters…I’m talking receipts. I’m talking about saving your business butt. I’m talking about saving your personal assets. I was shocked when training with the Internal Revenue Service to find out that you (and me, too), the taxpayer, are considered GUILTY until you PROVE YOURSELF innocent. That was so against what I had grown up with in this great country of America, the land of Superman and Perry Mason. Do you have what it takes to prove yourself innocent? How do you do that? Well, it’s very simple. It can also be considered boring drudgery, but it is your best defense. It’s called record keeping. Did you know that thermal paper receipts will fade over time. It is guaranteed! That printed strip of paper showing the date, the place of purchase, the item purchased and the amount you paid is so clear when you first get it. But when you look at it later it has begun to fade. And if you need it to show the IRS one or two years later, it could be completely blank. So how do you protect yourself with this paper that you need so badly? Put it in a copy machine and make a photocopy. Or scan it into your computer. If you have a paper copy, you will want a file folder or envelope or box to organize your papers. If you use a scanner, you will want to set up a folder on your computer so you know how to go back and find what you need later. Is this necessary for everyone? Yes. If you own a business or are self-employed you have a business tax return to file. And every person who owns a business must also file a personal tax return. It is important to keep your business records separate from your personal records. It is important to keep the records for one year separate from the records for another year. Did you know that the biggest gangster in Chicago during the Roaring Twenties, the 1920s, did not go to jail for moonshining, or drug running, or gambling or prostitution? Elliott Ness of Untouchables fame, was really an IRS Agent. This famous gangster, Al Capone. went to jail for tax evasion. He did not keep track of his income and expenses. Or did he? He just didn’t put all of the right numbers on his tax return. Years ago, on the 10pm TV news they used to say, “It’s 10 o’clock. Do you know where your children are?” And today I submit to you, It’s the last quarter of this year. Do you know what your numbers are? Do you know where that receipt is? I’ll be asking my clients for all their numbers come tax season. Get a jump on it. Catch up on what you could have done earlier this year. I’ll be asking you for your true numbers and I want you to be ready. They are your best audit defense.

Tax Return Troubles?

By Nellie Williams on

July 30, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS penalties, IRS Problems, IRS Tax Problems

Oh Boy, Oh Brother! Holy Cow! How else can I nicely say this is not good? I am always trusting my technology. I have a technology guru that I rely on. He is my go-to guy. Right now my computer is sick. That is the nicest way to say I think I have a virus. The good news is that it can be fixed. I have Patrick and Tara to help me. What happens when your tax return has a virus? We don’t usually think of tax troubles this way. But this is just one way to understand something is wrong and needs to be fixed. Our friends at the Internal Revenue Service work all year long. Their hours are not 24/7 but it can seem like it to us. They have private parties every day. Have you gotten your personal invitation? I hope not. That personal invitation is a welcome letter to a tax audit. I have talked about tax audits before and I’ll talk about them again. I want to help you avoid that audit. Today I’m talking about AMENDED TAX RETURNS. If you find you have made an error on your original return, you can head that invite off at the pass. You can stop it in its tracks before it ever gets started. If you find you have omitted income, you certainly want to “fess up” and correct your tax return. You will owe more tax, but you can minimize interest and penalties. The IRS is required by law to assess interest. They have some discretion on whether or not they assess some penalties. If you have omitted income and wait for the IRS to notice your forgetfulness, you will pay more. More time will have elapsed from the date of your original filing and the date the IRS gets around to your perhaps negligent return. How much money did you leave off? How much “too much” deduction did you take? Either way you did not pay in enough tax and IRS wants all of their share. Did you forget to claim a deduction that was allowable? Did you not realize your expense was deductible? if this is your situation, be sure to include copies of the receipt showing what you bought, when you bought it, and how much you paid. Yes there is a time frame for submitting your amended return. A safe rule of thumb is within 3 years of the original due date or the date you filed your return, whichever is later. For example, if your return was filed March 1st, the due date is April 15th. File your amendment before 3 more April 15ths go by. If your return was filed May 1st, the due date was April 15th, but you filed late. So you must submit your amended return before 3 more May 1sts go by. The IRS must have your amended tax return in their office before the amended due date (statute expiration date) arrives. Mail your returns so they are received BEFORE the statute expiration date. Don’t forget your state return, if you live in a state that has an income tax. Most state’s tax returns begin with the information from your federal return. If you make changes to the Federal return, you will want to make changes to your state return, too. Contact me if you need help.

I just got a call from the IRS!

By Nellie Williams on

July 16, 2014

- Fraud, IRS Problems, IRS Tax Problems, Tax Audit

When I, Nellie, get a phone call from the IRS, it really IS the IRS. Income taxes are my job, after all. If a phone call is the first contact YOU get from the IRS know this…IT IS PROBABLY NOT THE IRS! The first contact you will get from the IRS is usually a letter. If the IRS wants to talk to you, they will contact you by regular “snail” mail. They will NOT contact you by email. That email is phony, too. There are SO many ways people commit fraud. I have spent my life learning how to do things right. It boggles my mind that other people spend their lives trying to figure out how to scam the system. Most of those people are in jail or are on their way to jail. Personally, I like my own bed and my own cooking better than the bread and water jail diet. The IRS wants you to beware of these types of scams. The callers pretend to be from the IRS. They hope to be able to steal money from you. They also hope to steal your identity. The phone scams include many variations, such as…

Sometimes they say you owe money.
Sometimes they say you are entitled to a huge refund.
Some calls threaten arrest.
Some calls threaten your driver’s license revocation.
Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

According to IRS.gov, the phony scams can include some of these characteristics:

“Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

“Scammers may be able to recite the last four digits of a victim’s Social Security Number.

“Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

“Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

“Victims hear background noise of other calls being conducted to mimic a call site.

“After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.”

“If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

“If you know you don’t owe taxes or have no reason to think that you owe any taxes, then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484”

Next week I’ll discuss some of the other IRS’ “Dirty Dozen” scams for you to guard against.

The Ides of March

By Nellie Williams on

March 13, 2014

- IRS Audit, IRS Audit Help, IRS Problems, IRS Tax Problems, Uncategorized

March Forth. March Fourth. Time Marches on. Beware the Ides of March. In this, the month of March, business owners must be aware of the calendar and their tax deadlines. The Internal Revenue Service made us wait until the very end of January before we could file our tax returns electronically. And our tax filing deadline is still April 15th. But there is a little “grace” period for us this week. March 15th is the Ides of March. This year it falls on a Saturday. What’s the big tax deal about March 15th? That is the day corporations, large and small, must file their tax returns or request an extension of time to file before September 15th. March 15th is also the due date for employers to pay their trust fund taxes. Trust fund taxes are those taxes withheld from their employees’ paychecks. Employees trust their employers to send their money to their tax accounts at the IRS. What’s so important about this date being on Saturday? Many businesses are open on Saturdays, but the government is closed. That means we have two extra days to meet the March 15th deadline. IRS is giving us extra days this time. The next time the 15th falls on the weekend is in June. That is another payroll deposit date. It is also the due date for second quarter estimated tax payments. When the 15th is on a weekend or other holiday observed by the federal government, we have until the next business day to meet that day’s obligation. So mark your calendars not for March 15th, but for March 17th. Before you raise too many glasses to Saint Patrick, be sure you get your 1120 returns or extensions filed. Be sure you get your payroll deposits made. If you use the electronic payment service of EFTPS, remember you need to make that payment one day before the due date. EFTPS (Electronic Federal Tax Payment System) allows you to schedule payments whenever you want, 24 hours a day, 7 days a week. You can even schedule a payment as far as 365 days in advance. But remember this: To reach the IRS on time, payments must be scheduled by 8pm ET at least one calendar day before the tax due date. Even individuals can register to receive a pin number that will allow them to pay their individual taxes by EFTPS. Many people who owe tax to the IRS pay by check. Did you know you can have the IRS debit the amount you owe directly from your bank account? It’s like direct deposit in reverse. And you choose the day you want this debit to happen. Taxes can also be paid by credit card. Understand that the IRS does not pay the merchant fee that most other businesses who accept credit card payments do. The taxpayer pays what is called a convenience fee. If you choose to pay your taxes by credit card (maybe you get airline miles or some other benefit) you will know how much the convenience fee is before you actually pull the trigger on your credit card payment.

Daylight Saving Time – begins March 9, 2014

By Nellie Williams on

March 5, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, IRS penalties, IRS Problems, IRS Tax Problems

What does this have to do with taxes? You’d be surprised. .. Here in the United States, we have four time zones: Eastern, Central, Mountain and Pacific. Living in Arizona, we are one of the few places that does NOT observe Daylight Saving Time. Most cities and towns in Arizona stay on Mountain STANDARD time all year long. .. In the Spring, the rest of the country “Springs Forward” advancing their clocks one hour. They change their clocks from 8am to 9am and experience more daylight in the evening hours. Since the clocks in most of Arizona remain unchanged, we effectively “fall back” an hour. We are neighbors to California and I say to others that during Daylight Saving Time (DST) we are now on Pacific Time. .. Pacific time is three hours behind Eastern time which makes a difference when we are trying to contact businesses located east of us. When it is 8am in Phoenix, it is already 11am in New York and Washington, DC. When it is 8am in Phoenix, it is already 10am in Chicago and St Louis. And when it is 8am in Phoenix, it is already 9am in Denver and Las Vegas. Wait a minute, Phoenix and Denver are both in the Mountain Time Zone. But when it is DST, Denver is Mountain DAYLIGHT Time and Phoenix is Mountain STANDARD Time. And now when it is 8am in Phoenix, it is 8am in Los Angeles and San Diego. .. The Internal Revenue Service has always been aware of the differences in our time zones. That is why their Customer Service offices are open past 5pm. But they are not open 24/7. .. Now that they have developed a “modernized” electronic filing process, the IRS processes our e-filed tax returns continuously around the clock. But what happens on April 15th? A return filed after midnight will be considered LATE. But which midnight must I pay attention to? My midnight or IRS midnight? .. March 15th is important for businesses returns. Corporation returns are due March 15th. Like an individual, if a corporation cannot file their return by the due date, they can request an extension of time to file. But this request must be filed by March 15th. .. When it comes to these time sensitive and very important deadlines, I do not wait until the last possible minute. I want to file at least one day before. If I can’t be one day early, I want to get as much as I possibly can get done before 6pm on that deadline night. .. Everyone else who waits until the last possible minute is risking a bottleneck of electronic paperwork. And it you are delayed by this bottleneck, your tax return or your request for more time could be delayed. .. Uncle Sam doesn’t just want you. Uncle Sam wants your money. And when you owe money and you pay that money late, Uncle Sam wants even more money. .. So watch that clock. Time is a-ticking and it waits for no man.

But Wait There’s More

By Nellie Williams on

February 27, 2014

- IRS Problems, IRS Tax Problems, Tax advisor

This is not just a come-on TV pitch. This now applies to taxes, too. If you have interest income of $10 or more, you will get a Form 1099 INT showing you the interest you earned during the last year. If you made less than $10 of interest income, you will not get a 1099 INT. Your total interest earned for the year will be shown on your last bank statement of the year. Bank tellers will tell you correctly, that if your interest is less than $10 you will not get a 1099…that is true. What is NOT true is “Don’t worry about it, It’s not taxable.” Americans are taxed on their WORLD-WIDE income. Every dollar is taxable unless it is specifically excluded by law. Remember, bank tellers are in the banking business, NOT the tax business. If you own stocks in companies that pay dividends to their shareholders, and you have dividend income of $10 or more during the last year, you should get a Form 1099 DIV. This 1099 will show many things and that is why your tax preparer will want to see the actual form. You may not have received any actual cash – your dividend may have been used to purchase additional stock. That is still dividend income that needs to be reported on your tax return. You may have interest income or dividend income from tax-exempt sources. While these may be exempt from federal income tax, they may be taxable on your state tax return AND you must still report this on your federal 1040 tax return. Income tax is not the only tax that is collected from the Form 1040. Some taxpayers must also pay what is called Alternative Minimum Tax (AMT). Tax-exempt investment income is used to help calculate this AMT. Most taxpayers pay a regular tax that is above the minimum. They just don’t know that their regular tax is more than the minimum tax This is not because the tax is figured incorrectly. When a taxpayer has a large amount of itemized deductions, and may have tax exempt income, and perhaps has other tax-favorable events on a tax return, that person may have taken their income below the minimum tax level. That is when the AMT will kick in and raise the lowered tax up to the minimum regular tax. When I started this article I said, “Wait, There’s More”. If you are an investor with a brokerage account that contains mutual funds. you may not have the final income picture when your 1099B is issued. Originally these forms were to be issued on January 31st. Brokerage accounts were rarely able to meet this deadline so the IRS allowed them until February 15th. Why did they get this extra time? Because the IRS understood that the mutual fund companies needed to finalize their number crunching. The mutual fund companies are invested in multiple different stock companies and if every company waited until January 31 to file their reports, there was no way the brokerage account could also meet that January 31 deadline. But wait, there is even more. When you get your 1099B in mid-February for the year before, they may tell you to expect an amended 1099. They are letting you know that the companies they are invested in also may need more time to finalize their numbers. What a vicious cycle! Be prepared to delay the completion of your tax return until after mid-March. If there are changes to the income reported on your 1099B, it is often better to wait a few weeks, than to file your tax return in February and then have to amend it later for the corrected amounts.

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