Posts Tagged ‘IRS’

The IRS Increases Audits of Those Making at Least $100,000

Thursday, January 31st, 2008

I’m in NYC again this week.  Earlier in the week I taped a spot for Better TV and Parents.TV and met with a producer from the Today show!  Super exciting!

Brian Wyatt, one of our Personal Family Lawyers in Sacramento, wrote an article on his blog about the increase in audits for high income earners and he’s got some great tips about what you can do to audit proof yourself.

I’ll be back next week!

~Alexis

“The IRS Increases Audits of Those Making at Least $100,000 Per Year”
By Brian D. Wyatt

According to the January 30, 2008 issue of The Wall Street Journal, the IRS has been feeling some pressure to put additional taxpayer money in Uncle Sam’s pockets.  The Service has responded by increasing the number of audits of those who make more than $100,000 per year.

In particular, with regard to tax returns filed in 2007, the IRS increased audits of those making at least $100,000 per year by 14%.  Those making more than $200,000 saw a 29% increase in audits, and those with at least $1 million in income saw an 89% jump.  Even more audits are on the way for these demographics’ 2008 filings.  (See, Herman, T., “High Earners Face Surge in Tax Audits,” The Wall Street Journal, January 30, 2008, Page D1.)

If you are self-employed (e.g., you have an S-Corp or are a sole proprietor) and you earn more than $100,000 year, you may want to speak with your accountant about dealing strategically with the increased audit risk.

In addition, The Journal’s Wealth Report Blog suggests three other things high-earning people should do as you look at your 2007 taxes over the next few months:

(1) Don’t get overly creative with your tax accounting.  Keeping things simple should trigger fewer automatic “audit-flags” with the IRS.

(2) Try to be consistent with what you did last year, especially with regard to deductions.  The software the IRS uses to determine who to audit looks for major variations from year-to-year.

(3) Stick with what the forms tell you.  Don’t take a “different position” with respect to a 1099 or K-1 that you receive.

Good luck as you prepare and file your 2007 taxes!

Brian D. Wyatt is a Personal Family Lawyer in the Sacramento-Roseville Area specializing in estate planning, wealth protection, and small business issues.  For more information about Brian or his practice, please visit www.wyattlegal.com.

What to Do If You Are Audited By the IRS

Thursday, January 24th, 2008

When I first went into business for myself, I had no idea how difficult the financial record keeping part of things would be. As an entrepreneur, it’s my least favorite part.

But, it’s also one of the most critical.

And, it’s something I overlooked for the first 3 years of my business.

I trusted that other people were taking care of it, when they really weren’t. Balls were dropped. Payroll taxes got missed. Estimated taxes weren’t paid.

I got my first heads-up that things were bad when Drew Hunt, the forensic accountant valuing my business during my divorce, looked at me and said “Alexis, your books are messed up!”

I didn’t do anything about it.

The next wake-up call came when I found out we’d missed a month of payroll taxes and I owed a big penalty. I still didn’t do anything about it.

The last straw was when I ended up with an unanticipated 6-figure tax bill last year. Sure, it means business was good, but I was not prepared to pay the taxes. I finally decided I was going to do something about it.

I fired my CPA and hired a new CPA, Mark Pribble, who understood that he was going to have to takeover and do it all for me. He was not going to expect me to do anything financial record keeping related other than sign the checks. He installed a bookkeeper, Jan, in my office and started to get it all under control.

And thank God he did because a few months later I got another huge wakeup call – an audit notice from the IRS. Worst of all? They were auditing 2005, the year of my divorce. The year that the forensic accountant told me my books were messed up. Oh no!?! Oh, yes.

I nearly lost it. Taxes are the next worst thing to death, right? What was I going to do?

Luckily, I figured it out.

Today, I am overjoyed to report that after a nearly year-long audit, I got a no change letter in the mail. What’s that mean? It means that I don’t owe a dime. It’s truly unbelievable, but I think I know the secrets to why that happened and what you should do if you get the dreaded letter in the mail. Here they are:

1. Stay calm and accept the reality of the situation

My first inclination when I got the news was to run screaming through my house yelling “Why me, oh why me?” Truth be told, I did cry. I was scared to death. I knew how messed up my books were and couldn’t imagine how we’d ever be able to prove all the expenses. But within a few hours, I had calmed down. I accepted the situation, called my CPA who also helped calm me down and made the decision to handle the audit using all of the spiritual muscle I had developed over the prior 3 years.

2. Turn it over

You’ve heard the saying that “He who represents himself has a fool for a client and an idiot for a lawyer”, well, it’s the same for representing yourself before the IRS. This is not something you should do yourself. The stress is not worth it. Stress causes more disease than eating poorly, smoking, drinking or not exercising ever did.

I can’t imagine anything more stressful than handling your own audit. It’s just not worth it.

I resigned myself to paying Mark’s big bills each month and asked him to take over and keep me out of it to the largest extent possible. Fortunately for me, he did just that.

I gave him unrestricted access to my assistant Corey and gave Corey unrestricted access to my whole life. Between the two of them and Mark’s awesome colleague Elizabeth, they responded to every single document production request.
Thank you Elizabeth, Corey and Mark! I didn’t just turn it over to Mark though.

I turned it over to God. I trusted that the whole thing would turn out exactly as it was supposed to and each time I started to panic, I reminded myself that I was doing everything I could (hired a professional to handle it), it was already done (I couldn’t do anything to change the situation), and it would be all good (regardless of the outcome, I’d handle it and be okay).
Trust me, in the beginning, I thought about it all the time and it was not always easy to remember these things; I had to do a lot of reminding. But, eventually, I stopped worrying about it altogether.

3. Don’t talk about it a lot, but also don’t keep secrets either

When something “bad” is happening in our lives, we have a natural inclination to talk about it with everyone we know.

I resisted that inclination, though it came up a lot. I wanted to commiserate with everyone I knew.

But, I knew if I focused energy on it, it would grow and that, I did not want. So, I minimized the energy I gave it instead.

I only talked about it when I absolutely had to because I was asked a direct question or had to give some guidance to Corey, Mark or Elizabeth.

I also didn’t keep anything a secret. I was totally candid with the team working on my behalf. That’s the only way they could help me. And, they were totally candid with the IRS.

4. Take responsibility, but don’t take it personally or blame yourself

Getting audited brings up so many emotions.

You may be tempted to blame yourself. I did this a little bit – cursing myself for not keeping my records better and paying attention to my financials. In my worst moments, I convinced myself I could have done something to change the situation, if only I had … or if only I was … you fill in the blanks.

You may be tempted to take it personally and lash out against the agent auditing you. Remember that the IRS agent is a human being doing his or her job. They are not out to get you. They are there to do their job and that’s it. If you are a jerk, your outcome will not be favorable. If instead, you remain aware that you are an adult and that one “cost” of living and working in the United States is that you are subject to tax audit, it’ll go much more smoothly.

If you get audited, just remember that all you have to do is respond to the requests for information by providing records where you have them, explanations where you don’t, and keep the truth in mind that it’s all going to work out fine. No matter what.

Take a deep breath.

Wow, what a relief!

© 2007 Alexis Martin Neely

WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include everything in quotes with it: “Written by Alexis Martin Neely, mom, writer, speaker and Personal Family Lawyer. Alexis makes it super easy for your family to talk about and plan for sticky subjects like money, death and taxes. Get Alexis’ humorous, enlightening, and often quite revealing “Wealth Secrets” at: www.FamilyWealthMatters.com.