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.

The post Worried about an IRS audit? Prepare in advance first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

The SCDOR encourages taxpayers, some of whom may be working from home, to:

• Use our available online services. Visit MyDORWAY, our free online tax system, at MyDORWAY.dor.sc.gov to securely manage your South Carolina taxes from a smartphone or computer.
• Help protect yourself and prevent the spread of COVID-19 by calling or emailing us instead of visiting in person. Find the phone number or email address you need at dor.sc.gov/contact.
• Consider filing your Individual Income Taxes electronically, which is safer and faster. Visit dor.sc.gov/iit-filing to learn more. After you file, check your refund status online at dor.sc.gov/refund.
• Visit IRS.gov for federal tax relief information.
• Visit the SCDOR’s website at dor.sc.gov/emergencies and review SCDOR Information Letter 20-3 for more information. Connect with the SCDOR on Facebook and Twitter for up-to-date news and announcements.

More Information:

South Carolina Tax Relief

Individuals and businesses located in South Carolina who have been impacted by Coronavirus (COVID-19), Taxpayers who have businesses in South Carolina with offices in South Carolina, Taxpayers whose tax records are located in South Carolina, or Taxpayers whose returns are prepared by tax professionals impacted by Coronavirus (COVID-19).

Tax Relief for Eligible Taxpayers and Businesses

• Extensions of time to file tax returns and pay taxes (including estimated payments). The due dates for returns and payments due on or after April 1, 2020 have been postponed until June 1, 2020.
• Waiver of penalties and interest due as a result of any extensions.

Returns Filed by Affected Taxpayers

The post SCDOR Offers More Time to File Returns and Pay Taxes Due first appeared on Burkett Burkett & Burkett Certified Public Accountants, P.A..

Read the full article here.

“In a press conference on Tuesday, Treasury Secretary Steven Mnuchin announced that individuals and corporations can delay their tax payments for 90 days due to the coronavirus pandemic. Individuals can defer up to $1 million in payments for 90 days from the April 15 deadline. Corporations can defer up to $10 million in payments for 90 days. During that time, the IRS will not charge interest or penalties.”

“As of this writing, the IRS had not yet issued formal guidance on the policy. Mnuchin’s announcement did not delay the April 15 filing deadline.”

Keep up-to-date on official IRS Coronavirus Tax Relief news here.

The post Treasury Secretary Announces 90-Day Tax Payment Deadline Extension 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..