You file and pay your taxes like you are supposed to each year. At least, that’s what you thought until you received notice from the IRS informing you that you had been selected for a tax audit in Los Angeles. In the moments and days that followed, you couldn’t quite get the specter of the audit out of your head. Concerns that mistakes may have been made resulted in anxiety and sleepless nights. You may wonder, “Will the IRS find a problem?” You may be further preoccupied with the concern, “What will happen if the IRS does find a tax error? Will I lose everything?”
While the potential consequences you face are dependent on your actions, inaction, and other factors the Hoffman Tax Law Firm advocated and negotiates on behalf of taxpayers facing a tax audit or other tax enforcement action. If you think you may have unfiled taxes, undisclosed offshore accounts, undisclosed income or other potential tax problems, a Sacramento tax attorney may be able to help.
You claimed excessive deductions or expenses for your home or business
The IRS assesses and enforces taxes for business and individuals throughout the United States. Because the IRS processes taxes for individuals of all income levels and businesses of all sizes, in all industries and all stages of growth the IRS has compiled a wealth of statistical tax data. This tax data can show the average deductions or expenses claimed by a similarly situated business or individual. If your claimed exemptions, expenses, or deductions that significantly deviate from the average compiled from similar businesses, you may face a tax audit. Likewise individual filers that claim expenses or deductions that are out of step with your average income level face an increased risk of a tax audit.
You did not include all sources of income in your tax filing
When you file your taxes, you file them under the penalty of perjury. This means that the tax payer remains responsible for penalties due to an incomplete filing, concealed income or other inadvertent or intentional errors. For instance, the difficult economy has caused many people to seek additional sources of income. In many cases, this additional work is performed on a freelance basis. When work is performed as a freelancer rather than as an employee, a 1099 form for miscellaneous income rather than a W-2 is provided by the employer and filed with the IRS.
Working a freelancer means that the individual worker is responsible for payroll and other taxes. This can create a large and unexpected tax liability. Rather than pay taxes on the income, some individuals believe they can simply refrain from including the 1099 income in their taxes. Unfortunately, this common assumption is incorrect and can lead to harsh tax penalties.
The fact of the matter is that the employer send the 1099 to both the freelance worker and to the IRS. When the IRS processes taxes for the tax year, they match 1099s. That is, the IRS matches the 1099 filed by the business with the 1099 filed by the worker. If there is a mismatch in the forms, the probability of facing a tax audit increases significantly.
You decided to estimate your taxes
To be clear, there are situations where you should pay an estimated tax. These situations include businesses that must collect and pay over trust fund taxes and taxpayers who expect to owe money to the IRS but need to file for an extension.
However some people may simply believe that they can “ballpark it” when they do their taxes. They may employ odd rounding rules to make the math easier. They may simply make everything a round number so that they do not have to pull out the calculator. Unfortunately the decision to use only round numbers is incredibly easy for the IRS to identify because, in the real world, numbers are rarely neat. Rounding numbers to make the math easier can trigger an audit and result in the imposition of accuracy-related penalties.
You were selected for a random audit
Even if risk factors are not present in your tax filing, you still may be selected for a random audit. For many, selection on a randomized basis can seem worse than a targeted selection due to the anxiety and uncertainty involved. Many are concerned that the audit is nothing more than the IRS going on a “fishing expedition.” While it is true that the IRS will look for errors, taxpayers who play by the rules, file their taxes, and keep required financial records should be able to pass through the audit without incurring additional tax liability.
Facing an audit in Los Angeles or do you disagree with an audit determination?
The Hoffman Tax Law Offices can assist individuals facing an audit in L.A. and those seeking to appeal a tax determination. To schedule a free and confidential tax consultation, call the Hoffman Tax Law Office at (877) 958-8517 or contact the firm online.