Here’s how Taxpayers Can get Ready to File their 2021 Taxes

taxpayers have not started already, they should consider beginning the process of gathering tax documents and scheduling a tax filing appointment in order to ensure that their tax filing experience goes smoothly.

Here are some ways individuals can prepare in advanced:

Check your withholdings ASAP! Taxpayers should review their withholdings from the prior year to see if they were withholding enough during the year or if they should prepare to expect a tax balance with the IRS. For individuals who are still unsure if they had enough federal taxes taken out, they should review the following:

  • You received a smaller refund than expected after filing your 2019 taxes last year.
  • Owed an unexpected tax bill last year.
  • Experienced personal or financial changes that might change your tax liability.

To avoid any tax time surprises for future years, taxpayers can utilize the Tax Withholding Estimator to perform a quick paycheck or pension income checkup. Doing this in advance, can help taxpayers avoid owing a tax liability.

Gather and store all tax documents for at least three years

Whether you store your documents electronically or keep physical paper statements, having an organized recordkeeping system is vital to filing an accurate tax return. Taxpayers should have the following tax documents on hand:

  • 2019 tax return.
  • Form W-2 from employers.
  • Form 1099 from banks and other payers.
  • Forms 1095-A from the marketplace for those claiming the premium tax credit.
  • Form 1099-NEC, Nonemployee Compensation.
  • Notice 1444, Your Economic Impact Payment.

Verify your mailing and email address

In order to ensure all tax forms get sent to a taxpayer on time, people should double-check and confirm with their employer(s) and bank that their current mailing and email addresses are still correct.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Did your State Tax Filing Deadline Change? Here’s what You need to Know.

The IRS just announced that they will be extending the federal tax deadline from April 15 to May 17. This will allow taxpayers additional time to file their tax return during the ongoing pandemic and give the IRS some breathing room to also distribute the third round of stimulus checks to qualifying individuals. Although the federal tax deadline has been extended, taxpayers should be aware that state tax extensions may differ. Here are all the updated state tax deadlines you should be aware of.

Tax Extensions By State

As of now, 35 states have issued their guidance on state tax extension deadlines to May 17, 2021:

Arkansas recently announced that it will waive requirements for a written request for an extension to file an individual income tax return for the duration of the emergency. The state of Arkansas will also extend the tax filing and payment deadlines to May 17, 2021. The Arkansas tax extension will also apply to 2020 S corporation, fiduciary and estate, partnership, and composite returns.

California will extend its state tax filing deadlines and payment due date for individuals to May 17, 2021. Taxpayers should be aware that the California tax extension does not apply to estimated tax payments due April 15, 2021.

Connecticut has extended its state tax filing deadline for individuals to May 17, 2021. The Connecticut tax extension aligns with the new federal deadline.

Colorado has announced that 2020 individual income tax payment and filing deadline has been extended to May 17, 2021. Although the Colorado tax deadline has been extended, penalties and interest will be assessed if a payment is made after the tax deadline. The Colorado tax extension does not apply to estimated payments for the 2021 income tax year that are due on April 15, 2021.

The District of Columbia income tax returns have been extended until May 17, 2021. The state filing deadline also applies to all D20, D-30, D-40, standalone Schedule H, D-41, D-41, D-40B and D-65 tax filers and combined return filers. Taxpayers should be aware that The District of Columbia  tax extension does not apply to estimated tax payments due on April 15, 2021.

Delaware has extended its deadline to May 17, 20201 for both income tax returns and composite returns. The Delaware tax deadline extension does not extend to estimated payments for the 2021 tax year and will remain on April 30, 2021.

Georgia will extend the 2020 state individual tax filing payment deadline to May 17, 2021. The Georgia tax extension will not apply to estimated tax payments due on April 15, 2021.

Idaho recently introduced legislation to extend its tax filing deadline to May 17, 2021 to allow individuals more time to file their income tax returns. A decision on if an Idaho deadline extension will be granted is expected to be made on or after April 6, 2021.

Illinois 2020 state tax filing and payment deadline for individuals has been extended to May 17, 2021. The Illinois tax extension will not apply to 2021 estimated tax payments due on April 15, 2021.

Indiana announced that individual tax returns and payments originally due by April 15, 2021 will be extended to May 17, 2021.

Kansas has extended its tax filing, payment deadline for individual returns, and 2020 fiduciary income returns, to May 17, 2021. 2021 Kansas estimated tax payments will still be due April 15, 2021.

Kentucky the 2020 state tax filing and payment deadline for individuals has been extended to May 17, 2021. Taxpayers are reminded that the Kentucky tax extension does not apply to 2021 estimated tax payments due April 15, 2021.

Massachusetts will allow individuals additional time to file and pay their taxes by extending the tax deadline to May 17, 2021. The Massachusetts tax extension deadline will not apply to 2021 estimated tax payments.

Maine has announced that the state tax and payment deadline for Main 2020 individual income taxes has been extended to May 17, 2021.

Michigan has extended the state tax filing deadline and payment deadline to May 17, 2021. The first quarter estimates for tax year 2021 remain due on April 15, 2021.

Minnesota will allow individuals to file their state taxes and make their payments without having to worry about penalties and interest accruing up until May 17, 2021. This grace period does not apply to individuals who need to pay their 2021 estimated tax payments.

Mississippi will allow 2020 individual income tax returns to be filed until May 17, 2021. It is recommended to pay any tax due on or before May 17, 2021 to avoid and penalties or interest.

Missouri announced its 2020 tax deadline extension and payment deadline from April 15, 2021 to May 17, 2021. The Missouri tax extension does not apply to estimated tax deadlines that will be due on April 15, 2021.

Montana has extended both its filing and payment deadlines for 2020 individual income tax returns to May 17, 2021. Taxpayers are reminded that quarterly estimated payments for 2021 income taxes have not changed.

Nebraska announced that its state tax extensions will apply to both 2020 state individual tax filing and payment deadlines. Individuals will have until May 17, 2021. First quarter estimates for the 2021 tax year will remain on April 15, 2021.

North Carolina announced its state tax extension deadline for taxpayers to file their 2020 individual income taxes has been moved to May 17, 2021. Penalties will not be assessed for individuals who file and pay their taxes after April 15, 2021. Payments made after this date will cause individuals to accrue interest. The North Carolina tax extension does not apply to trust taxes such as sales and use or withholding taxes. Estimated tax payments are still due on April 15, 2021.

North Dakota will allow individuals to file their states tax return and pay any related tax up until May 17, 2021. Penalties and interest will be waived until May 17, 2021.

New Jersey 2020 state deadline extensions for income tax filing and payment have been extended from April 15, 2021 to May 17, 2021. The extended New Jersey tax deadline does not apply to estimated tax payments for the 2021 tax year and are due on April 15, 2021.

New Mexico tax deadline extension for filing and paying 2020 personal income taxes has been extended until May 17, 2021.

New York has extended its 2020 personal income tax returns and any related payments until May 17, 2021. Any 2020 personal income tax returns and related payments of tax that was previously due on April 15, 2021 will not be subject to any failure-to-file, failure-to-pay, late-payments, or underpayment penalties or interest if filed and paid by May 17, 2021. The New York state tax extension does not apply to estimated tax payments for the 2021 tax year are due on April 15, 2021.

Ohio will extend its state tax deadline to file and pay 2020 individual income and school district taxes to May 17, 2021. 2021 estimated tax payment due dates have not been extended.

Oregon automatically extended its state tax extensions for 2020 income tax filing and payment due date for individuals from April 15, 2021 to May 17, 2021. Penalties and interest will begin to accrue an any unpaid balance beginning May 18, 2021.

Pennsylvania has announced its state tax extension for taxpayers to file and pay their 2020 personal income taxes will be May 17, 2021. 2021 estimated tax payment due dates were not extended. 

Rhode Island will allow individuals to file and pay their 2020 individual income taxes up until May 17, 2021. The Rhode Island tax filing extension does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021.

South Carolina announced its state tax extension for filing and paying 2020 personal income taxes until May 17, 2021. This South Carolina tax extension does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021.

Tennessee extended its due date for filing and paying the Hall income tax from April 15, 2021 to May 17, 2021. Franchise and excise tax have been extended to May 17, 2021 for individuals who file a franchise and excise tax return using Schedule J2, Computation of Net Earnings for a Single Member LLC Filing as an Individual. Both interest and late-filing penalties will not be applied to payments made and returns filed on or before May 17, 2021. Estimated tax payment due dates have not been extended.

Utah announced its tax deadline extension for filing and paying 2020 personal income taxes until May 17, 2021. The new Utah tax deadline does not apply to estimated tax payments for the 2021 tax year and are due April 15, 2021. Taxpayers are reminded that interest and penalties will not accrue if payment requirements are met by May 17, 2021.

Virginia has extended its state tax filing deadline for individuals to May 17, 2021. This relief does not apply to estimated tax payments for 2021 tax year that are due on April 15, 2021.

Vermont announced its tax extension for 2020 personal income tax filing and payment due date to May 17, 2021. Interest and penalties can be avoided if payment requirements have been met by May 17, 2021.

West Virginia will allow 2020 individual income tax returns to be filed until May 17, 2021. It is recommended to pay any tax due on or before May 17, 2021 to avoid and penalties or interest.

Wisconsin announced its state tax extensions for 2020 personal income tax filing and payment. Taxpayers are expected to file and meet any payment requirements by May 17, 2021 in order to avoid penalties and interest.

Texas, Oklahoma, and Louisiana state tax deadlines extended due to winter storms

The IRS recently announced that they will be providing tax relief to the victims of the winter storms in Texas, Oklahoma, and Louisiana. These states will have until June 15, 2021 to file their individual and business tax returns and make any tax payments. The May 17 tax filing deadline and payment extension relief does not apply to these three states. 

For additional information on your state’s tax deadline, you can visit the Federation of Tax Administrators website.

To learn more about the new tax filing deadline, click here.

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Did You Receive a Letter from the IRS? Here’s what to do.

For many taxpayers, it can be extremely confusing to decipher the information that the IRS is trying to convey to you in a notice. Individuals should first read the notice or letter they received in full before making any rash decisions. For those who are still unsure about what the IRS is trying to tell them, here are a few tips to help you figure out what your notice means.

Make sure the notice is for you

There is a possibility that the IRS may have sent a notice or letter that is not meant for you. The massive government agency handles millions of tax returns and is currently understaffed, underfunded, and the employees are overworked. With all of this in mind, it is inevitable that the IRS could make the mistake of sending you a notice. Make sure to read the notice and double-check that the information being requested pertains to you. If you do not find anything wrong with your tax return or believe that you do not owe a balance, contact the IRS to see if the notice was a mistake on their end.

What to do if you do not understand your notice

If you have received a notice and are unsure of what the IRS is trying to tell you, send a copy to your tax preparer so they can provide an explanation to you. You can also download the FREE Optima® TAX APP with IRS Notice Analyzer which will help you analyze your notice and measure the severity of your situation in just seconds. If you prepared your tax return yourself, look for issues that a preparer would look for: A date may have been misread, information that is being requested, or the IRS informing you of a tax balance.

If you have yet to resolve any tax issues that the IRS informed you of, there is a possibility that you may eventually have to face financial consequences with the IRS. Taxpayers should also be aware that tax items from a prior year could impact their current year’s return.

Make sure to keep your records

Taxpayers should keep their receipts and records for six years to ensure the IRS does not request any information from their past tax returns. It is also important to note that if you are going through an audit, the IRS will not accept credit card receipts even if you use a company credit card. The IRS will require taxpayers to provide the original vendor receipt.

Should the IRS audit your taxes, always be sure your tax records and receipts are on hand to ensure the process is seamless. This can help prevent the IRS from sending you a tax bill for issues on your return that could have been resolved if you had substantiation.

Download the Optima® TAX APP with IRS Notice Analyzer

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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What Is the Statute of Limitations to Collect Back Taxes?

The IRS is working with taxpayers to help them settle their tax debt. The statute of limitations on back taxes helps rid people of tax debts by placing a time limit on when the IRS can seek payment on a debt. After that time is up, the IRS can no longer attempt to settle the debt.

Does the IRS forgive tax debt after 10 years?

Yes, the statute of limitations on tax debt is ten years, beginning from the initial tax assessment. At the end of ten years the person is completely free of the debt.

Can the Statute of Limitations be extended?

There are some stipulations that can make those ten years spread out to an even longer period of time. Here are some reasons you may have an extended tax statute of limitations:

  • If you agree to an extension, your statute is placed on hold until that extension time is up.
  • If you file bankruptcy, your statute is placed on hold until six months after the bankruptcy and court proceedings have been finished.
  • If you leave the country for at least six months, the statute is placed on hold until you decide to return.
  • If you are making payment installment arrangements or request innocent spouse relief, the statute is placed on hold until the final decisions are made.

Also, in the case of civil tax fraud or evasion, the IRS can go back as far as it wants–the statute of limitations doesn’t apply. They must get you to agree to any extensions or payment installment set up before they can continue to pursue you, and you will have to sign a waiver. Before you sign, be sure you understand what it is you are signing!

Why does the Statute of Limitations Exist?

The statute of limitations was put into place to give people a much-deserved break, and a chance to be free from tax debt. It is important to know if it will benefit you and your current situation, before signing any documents or agreeing to an installment plan.

Optima Tax Relief professionals provide a range of comprehensive service for your tax issues. Book a consultation with us today to learn more about how we can help you.

What Does IRS Code 9001 Mean?

There are still many IRS terms and codes that are a mystery to the average taxpayer. Tax terms can be confusing, whether you’re a first-time tax filer or have been filing tax returns for years. IRS Code 9001 is a common error code, but many people don’t know what it means. We’ll explore what the IRS Error Code 9001 is, and how to avoid it.

IRS Code 9001

You filed your federal income tax return a while ago and you are expecting a refund. You can check the status of your return and your refund check (for paper returns) or direct deposit (for electronic returns) at the IRS.gov website. The “Where’s My Refund?” portal also provides an estimate of when you should expect your refund.

If you receive an error code such as IRS Code 9001 when you check the status of your return, you may worry that your return has been flagged for an audit. Relax. In fact, IRS Code 9001 is one of an entire set of codes that are included within the Internal Revenue Manual, or IRM, which is the set of guidelines used by the IRS. This is not an audit flag, but rather an error code generated when taxpayers attempt to access return or refund results using the wrong Social Security number or TIN.

Where’s My Refund?

The IRS established the “Where’s My Refund?” portal to allow taxpayers to check the status of their federal income tax return and refund. To access the portal you need three pieces of information: your Social Security Number or Taxpayer Identification Number (TIN), your filing status and amount of the refund that you are expecting. This refund amount should be listed in whole dollars and must match the amount listed on your tax forms exactly.

Taxpayer Identification Number (TIN)

Most taxpayers include a Social Security number on their tax returns. But certain taxpayers, such as resident and nonresident aliens, are not eligible to get one. The Taxpayer Identification Number (TIN) is designed to allow individuals to file federal and state income tax returns, without an SSN.

How To Fix a IRS Error Code 9001

In most instances, when you check the status of your return on the “Where’s My Refund?” portal, you will receive a message stating that your return is being processed or that your refund is on its way. Occasionally, you may receive one or more error codes, including IRS Code 9001: “Taxpayer accessed Refund Status using a secondary TIN. Refund Status could not be returned. Get a Primary TIN Analyze account and follow appropriate IRM.” The fix is simple – enter the proper Social Security number or TIN into the “Where’s My Refund?” portal. If you still receive error messages, contact the IRS or an expert such as an attorney with Optima Tax Relieve for further assistance.

Wondering where your tax refund is? Read our dedicated blog to learn more. If you need tax help, contact us for a free consultation.

I Just Moved. How do I File Taxes in Multiple States?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you’ve moved within the last year, you may have questions on how to prepare your tax return and how you should file in the current state you live in or the state you moved from. It’s also important to know if you will need to file multiple tax returns depending on whether or not the state you moved to has an income tax. 

It can be confusing to know how you should file and how many tax returns you need to prepare. Here are a few answers to some questions that you may have:

Filing part-year resident tax returns

A part-year resident tax return will be filed for the year of your move. Taxpayers don’t have to worry about paying double the state tax since most states don’t tax the income earned in the other state.

If income was earned through interest or dividends that were paid during the year, a taxpayer will need to divide that in accordance with the number of days spent at each location. 

Reporting income earned in some states

Some states require that all your income for the year is reported if you are a resident in that state at the end of the year. There’s also no need to worry about having to pay double the state tax on your income if you have to report some of the income you earned to the previous state that you lived in. On the tax return for your new state, you can claim a tax credit to your old state on the same income. The tax credit will offset any additional tax on the income that you reported to both states.

If you need tax help, contact us for a free consultation.

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Tax Tips: How to Get a Copy of Your IRS Transcript

Getting a copy of your IRS transcript is easy and can be done entirely via the IRS.gov website. Follow these simple steps to retrieve your tax transcript.

Keep in mind that only transcripts for filed taxes are available. For example, if you did not file in 2003, there won’t be a tax transcript for that year. Also, if the IRS has not finished with your taxes, the transcript will not be available until they have completed those taxes.

What is an IRS Transcript used for?

IRS transcripts are typically used to validate past income and to prove income to lenders. They are often used to determine status for mortgage, student, and small business loan applications and help with tax preparation.

How to get your IRS Transcript Online

  1. Visit the IRS website at IRS.gov.
  2. Look under the Tools tab that is part way down the web page. Click: Get transcript for your tax records.
  3. Once you reach the transcript page, you can request to get them by mail or continue getting them online by clicking on the box to the left, Get transcript online.
  4. If you have gotten transcripts before, you can sign in. If not, you will need to click on the right side to create an account: Sign up.
  5. Complete the sign up process and log in.
  6. The next page will show a drop-down menu and ask why you need the transcript. Choose the answer that best fits your needs and continue. They ask you what you need it for so they can help you pick the right transcript.
  7. The next page lists all your transcripts, in four different categories for all the years you filed. These include Tax Return Transcript, Record of Account Transcript, Account Transcript, and Wage and Income Transcript.
  8. Select the transcript you need for the right year.
  9. The site will automatically generate a PDF file of your transcript. Print it and save it.
  10. Log out completely or close the browser when you are finished.

Make sure your pop-up blocker is off for the IRS site. It can cause errors when trying to retrieve your transcripts. If you chose mail, allow 5 to 10 business days for them to arrive before requesting another.

If you have problems navigating the website, you can contact the IRS for further assistance at 1-800-829-1040. For further assistance or help with a different tax issue, contact Optima Tax Relief. Optima Tax Relief offers a comprehensive range of tax relief services. Schedule a consultation with one of our professionals today.

I Didn’t Pay my Tax Balance by July 15. Now What?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you missed the tax deadline this year and aren’t sure what to do next, don’t worry.  There’s still time for you to file your tax return and avoid having the IRS come after you for a failure to file or for having any remaining balance owed after filing your tax return. 

Here are some after-tax-day tips you should follow:

  1. File ASAP to avoid additional interest and penalties. For those who filed their taxes before the tax deadline and received a refund, they will not have to deal with the IRS charging additional fees against them. If you have filed after the deadline, the IRS will place penalties and interest against you until the tax return has been filed. Taxpayers can request an extension up until the October deadline, but  it is important to keep in mind that interest will still accrue even if an extension is filed.

A 5% failure to file a penalty is applied to those who fail to file or file a return late. If a return is filed more than 60 days late, the minimum penalty is either $435 or100% of the unpaid tax, whichever is less. The basic failure-to-pay penalty rate is generally 0.5% of unpaid tax for each month or part of a month.

  • File to get a tax refund. The only way to receive your tax refund is to file your taxes. There typically is no penalty for filing after the tax deadline if a refund is due. The IRS strongly recommends taxpayers electronically file their taxes since there will be delays this year for those who file their paper return. 
  • File your taxes electronically. Taxpayers who owe a tax balance will be able to pay off their liability through the IRS’s website by debit or credit card. If you are unable to pay off your tax balance in full, the IRS has an option to go on a payment plan. With Direct Pay and Electronic Federal Tax Payment Systems, it can make it easier and much more efficient for taxpayers to file their taxes and pay off any balances they may owe.

If you need tax help, contact us for a free consultation.

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IRS Increasing Focus on Taxpayers Who Have Not Filed Tax Return

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

It is expected that the IRS will visit more taxpayers who have yet to file their past tax years in an effort to increase tax compliance and enforce the law. The IRS is also looking into tax data, researching new compliance methods, and including increasing in-person visits to taxpayers who are in collections or out of compliance.

The IRS’s main goal is to bring delinquent taxpayers into compliance by filing all unfiled past tax years as well as assisting with any pending payment obligations taxpayers may still have with the IRS. The IRS wants to further promote compliance by also using the following systems:

  1. Increase Identification and cases for individuals and business non-filers. The IRS will look into assigning new cases to IRS employees to ensure those assist those who have yet to file their past tax years.
  • Automated Substitute for Return program (ASFR). Individual taxpayers who have multiple unfiled years as well as a tax liability possibly tied to these years will receive notices alerting them to tax years that need to be filed as well as any potential tax liability they may owe.
  • Automated 6020(b) process. Promotes employment tax filing by identifying business taxpayers with employment requirements who have yet to have filed for a specific tax period. The IRS will be making greater efforts to ensure that businesses comply with both tax filing and payment requirements.
  • Delinquent Return Refund Hold Program (DRRH).  A taxpayer’s refund will be held if the IRS finds that the individual has at least one unfiled tax return within the last five years.

Many non-filers are owed tax refunds but are unable to receive them because of past tax years that still need to be filed. The IRS strongly recommends filing any unfiled years to ensure they receive any future tax refunds. 

For taxpayers who haven’t filed in previous years, the IRS has current and prior year tax forms and instructions available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

If you need tax help, contact us for a free consultation.

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What are the Common IRS Audit Triggers?

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.Two words that strike anxiety into even the most honest taxpayer? Tax audit. In reality, the odds of being audited by the IRS are slim. While the IRS is diligent about collecting the revenues which it is owed, the old days of the IRS driving honest taxpayers and their families to financial ruin are largely a thing of the past.

Related article: 5 Steps to Surviving an IRS Audit

Nonetheless, many taxpayers wish to eliminate even the remote chance that they will face an IRS audit. While there is no absolute guarantee that you will avoid an audit, steering clear of these dozen common IRS audit triggers will place the odds firmly in your favor.

Common IRS Triggers

Too Much Income

Just like old-time bank robbers, the IRS is more likely to target high-income taxpayers because they are more likely to have financial resources that can be collected. But this doesn’t mean that you should make less money to avoid an IRS audit. It does mean that if you are a high net worth individual, you should be extra diligent about record-keeping to avoid triggering an audit

Too Little Income

Low-wage workers are not necessarily targets for tax audits by the IRS. But taxpayers who report incomes far below what others in their profession earn might raise flags and audit triggers. For instance, physicians who report less than high five-figure incomes may raise suspicion, unless they work in areas of extreme poverty.

Unreported Income

This is a no-brainer. The IRS receives notification of income for wage earners from Form W-2. Non-wage income is reported on form 1099. It really isn’t very smart to underreport your income. Of course, if you have legitimate deductions and tax credits that reduce your adjusted gross income, that’s fine. Just be prepared to verify the tax breaks that you claim in case the IRS inquires.

Rounded Numbers

Did you really make exactly $50,000 last year? If so, be ready to prove it to the IRS. Otherwise, don’t round or average numbers, because doing so sends a signal to the IRS that the rest of your return might be less than accurate. Discrepancies between State and Federal Returns Get this one wrong and you may wind up with double trouble: inquiries from Uncle Sam and from your state. Plain and simple, the income that you report to the IRS must match the income that you report to the state. Of course, deductions can and often do differ between the federal government and the state, so differences there are fine.

Unexplained Variations in Income

Your income jumps after you graduate from college and get a great job. Or you lose your job and spend a year searching for a new job. Those kinds of variations don’t generally raise red flags with the IRS. Likewise, self-employed workers need not lie awake nights worrying that their fluctuating income might trigger an audit. But regular wage workers who stay on the job with a single employer tend to have fairly steady wages. Reporting otherwise without supporting documentation may well trigger an audit. Related article: 10 Tax Preparation Tips For The Self Employed

Unusually Large Losses

If your house burned down last year, claim the full amount of your losses. Likewise, if your retirement fund was severely affected by a dip in the stock market or by other factors, go ahead and report the decline. But have documentation ready to back up your claim. Don’t claim you have unusually large losses if you don’t have paperwork to prove it.

Larger-than-Average Deductions

Charitable deductions that are out of proportion with your income are a red flag for the IRS. Likewise, self-employed workers who earn much more from their clients or customers than they report in income on Schedule C should brace themselves. If you really are giving away a large proportion of your net worth, keep meticulous records of your gifts and their net worth. Entrepreneurs who record large capital investments in a single year should maintain invoices and other documentation to explain where so much of their income went.

Home Office Deductions

If you’ve been working from home during the COVID-19 pandemic, then you may qualify for a home office deduction. In the 2013 tax year, the IRS instituted a much simpler means of claiming the home office deduction. In order to qualify for this deduction, a taxpayer must have a dedicated area in their home that is exclusively used for conducting business on a regular basis. The office in a home must serve as the taxpayer’s principal place of business and must not overlap with any other outside activities. (IRS.gov)

Sloppy or Incomplete Returns

The IRS makes it really easy to e-file your income tax returns, and for the majority of taxpayers, e-filing is free. You should take advantage of this convenience. E-filing features double-checking capabilities that minimize common mistakes. Placing entries on the wrong line or skipping important entries altogether is rare when e-filed. You also receive a timely alert when the IRS accepts your return and you receive any refunds that you are due in days or weeks, rather than months.

Adoption Tax Credit

The IRS provides a generous credit for adoption. For 2019, the credit is up to $14,080 per child, for up to 3 children. Qualified adoption expenses can be placed on a tax return if they are a reasonable and necessary adoption fees, court costs and attorney fees, traveling expenses and other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

Straight Up Tax Scams

You should not refrain from claiming any of the tax credits or deductions listed above out of fear of being audited. There is no reason not to claim every tax break to which you are legitimately entitled. But frivolous claims such as paying income tax is voluntary or that federal income taxes are unconstitutional are a fast track to an IRS audit. Likewise, unscrupulous tax preparers that jack up your refund with questionable tax credits and deductions should raise major red flags for you, not to mention the IRS.

Need some tax relief assistance? Optima Tax Relief offers a comprehensive range of services. Schedule a consultation with one of our tax professionals today to receive expert advice.