Monday, July 1, 2013

What if you get audited?

The word "AUDIT" is enough to give almost anyone a shiver down their spine.  After the initial shock from receiving notice from either the IRS or from the state taxing agency has worn off, what should you do next?

First review the notice to identify what the tax authority is questioning.  The majority of "audits" in my experience have been computer generated notices of discrepancies between what the taxpayer reported and what was reported to the taxing authority.  This notice is rather intimidating and although it doesn't appear this way, it is asking for additional information to clarify the discrepancy.  The notice also calculates an additional tax due if the discrepancy is correct, but that does not mean an amount to be paid if the original filing was correct.  So review your tax return and if you used a preparer to assist you, contact that to get assistance in responding to this notice.

Secondly, make sure you fully respond to the notice within the time frame provided.  If you are uncomfortable responding, contact a qualified professional for assistance.  The notices always have dates that a response is requested by so be sure you meeet those deadlines.  If you are to contact someone at the taxing agency, be sure to contact them or have your representative (tax preparer) do that once provided Power of Attorney if necessary.  The majority of IRS "audits" are now conducted via mail, so respond in writing and fully explain and address all issues raised on the notice.  If you need to amend your tax return, be sure you amend both the Federal and State returns to correct for any oversights.  If there is an amount due, try to pay as quickly as possible to avoid accruing additional interest and penalties related to the amendment or correction.  If the result is an additional refund to you, you will be entitled to interest as well.

Lastly be prepared to wait.  The IRS and tax authorities are overwhelmed with responses to these notices and send out acknowledgement letters that indicate "thank you for sending in your response, we need more time to review and will follow up with you within XX days."  So be patient as the tax agency reveiws your response and attempts to resolve the issue.

Sometimes it may take more than one response to get an issue resolved.  Again be patient as you work with the representatives at the tax agency to resolve the issue.  Generally being polite and respectful with the representative is more appreciated by both the representative and yourself, as the old saying goes - "you can catch more flies with honey than with vinegar."

Love is in the air...

Ah...Summer love, that time of year when young (or not so young) couples may decide to get married.  It is a joyous event and a time to celebrate the joining of two families into one new family.  The newlyweds then proceed to go on a honeymoon to celebrate their nuptials and then return to go back to work as the new Mr. and Mrs.

But you may be asking why is a tax professional writing about the topic of marriage and that answer is simply, almost every decision we make has an impact on your tax calcuations.  Marriage is no different and the IRS even sent out a recent reminder of things to review when you have gotten married like:

  • It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at, by calling 800-772-1213 or by visiting your local SSA office.
  • If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at or report the change at your local post office.
  • If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
  • If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. You can make changes to your withholding by submitting a new form W-4 to your employer.
  • If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return.
  • If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.  Also if you live in a Community Property state, different rules may apply to allocation of income between the spouses so please consult with a professional to determine if this impacts you.
I recommend that you consult with your advisor to see if and how you may be impacted and do that while you can still make changes to avoid a big surprise when you go to file your tax returns next April.