IRS audit rates are historically low, according to a recent Government Accountability Office (GAO) report, but that’s little consolation if your return is among those selected to be examined. Plus, the IRS recently received additional funding in the Inflation Reduction Act to improve customer service, upgrade technology and increase audits of high-income taxpayers. But with proper preparation and planning, you should fare well.

From tax years 2010 to 2019, audit rates of individual tax returns decreased for all income levels, according to the GAO. On average, the audit rate for all returns decreased from 0.9% to 0.25%. IRS officials attribute this to reduced staffing as a result of decreased funding. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, all types of audits are being conducted less frequently than they were a decade ago.

There’s no 100% guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, the best way to survive an IRS audit is to prepare in advance. On an ongoing basis you should systematically maintain documentation — invoices, bills, cancelled checks, receipts, or other proof — for all items to be reported on your tax returns. Keep all records in one place.

Audit targets

It also helps to know what might catch the attention of the IRS. Certain types of tax-return entries are known to involve inaccuracies so they may lead to an audit. Here are a few examples:

• Significant inconsistencies between tax returns filed in the past and your most current return,
• Gross profit margin or expenses markedly different from those of other businesses in your industry, and
• Miscalculated or unusually high deductions.

Certain types of deductions may be questioned by the IRS because there are strict recordkeeping requirements for them — for example, auto and travel expense deductions. In addition, an owner-employee’s salary that’s much higher or lower than those at similar companies in his or her location may catch the IRS’s eye, especially if the business is structured as a corporation.

If you receive a letter

If you’re selected for an audit, you’ll be notified by letter. Generally, the IRS doesn’t make initial contact by phone. But if there’s no response to the letter, the agency may follow up with a call.

Many audits simply request that you mail in documentation to support certain deductions you’ve claimed. Only the strictest version, the field audit, requires meeting with one or more IRS auditors. (Note: Ignore unsolicited email or text messages about an audit. The IRS doesn’t contact people in this manner. These are scams.)

The tax agency doesn’t demand an immediate response to a mailed notice. You’ll be informed of the discrepancies in question and given time to prepare. Collect and organize all relevant income and expense records. If anything is missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If you’re audited, our firm can help you:

• Understand what the IRS is disputing (it’s not always clear),
• Gather the specific documents and information needed, and
• Respond to the auditor’s inquiries in the most effective manner.

The IRS normally has three years within which to conduct an audit, and an audit probably won’t begin until a year or more after you file a return. Don’t panic if the IRS contacts you. Many audits are routine. By taking a meticulous, proactive approach to tracking, documenting and filing your company’s tax-related information, you’ll make an audit less painful and even decrease the chances you’ll be chosen in the first place.

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Nexsen Pruet, PLLC reports that the Department of Labor has officially abandoned the Obama-era “Final Rule” by requesting that a federal appeals judge dismiss the DOL’s appeal. You can find their technical release here.

The DOL decision is summarized below:

Originally scheduled to take effect on December 1, 2016, the controversial overtime regulation would have increased the minimum salary required to maintain “white collar” exemptions from $23,660 to $47,476, making 4 million additional workers eligible for overtime pay.

The motion was first put on hold when Judge Amos Mazzant, a federal district judge in Texas, filed a  temporary injunction on the rule. The DOL appealed the injunction, but faced several roadblocks partially due to the delay of President Trump’s cabinet appointments.

As recent as June, the DOL announced that it was still planning to move forward with an appeal of Judge Mazzant’s injunction, but their motivations appeared to change. Rather than continuing to argue for a minimum salary of $47,476, the DOL chose to focus on the section of Judge Mazzant’s order that indicated the DOL had overstepped and didn’t actually have the authority to establish salary requirements.

On September 5, 2017, the DOL requested too late that the Fifth Circuit Court of Appeals dismiss its appeal. As of August 31, 2017 Judge Mazzant had issued a final order, meaning the injunction was no longer pending. The Judge did abandon previous claims that the DOL had no authority to make salary requirements, and instead suggested that DOL could make the requirements but not when the salary became so high that the employees’ duties were irrelevant.

At this point, the overtime rule appears unlikely. However, the DOL could make another appeal and work towards a more compromised salary. If they decide against that, labor unions or other third party groups could pursue the appeal on their own. In the meantime, the DOL has opened up a new period of public comment on the minimum salary threshold.

More information can be found in The National Law Review, and as always, you can call  Burkett Burkett & Burkett, Certified Public Accountants, P.A. with any questions you may have regarding this rule.

The post Department of Labor Abandons Overtime Rule Appeal first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Individuals can view the complete tax planning document  here, and businesses can find the information they need here. If you have any questions on how to file your return this year, please contact Burkett Burkett & Burkett Certified Public Accountants, P.A. It’s our job to know the most important tax changes and help you to understand how they affect you or your business.

The post 2016 Year-End Tax Planning first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

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As always, you can reach out to a tax professional at Burkett Burkett & Burkett Certified Public Accountants, P.A. if you have any questions.

The post Employment Law Update: December 1, 2016 Deadline for Compliance with new Overtime Rules is Now on Hold first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..