Tag Archives: records

IRS Backlog of Historical Proportions

What you need to know if one of your tax returns is stuck

The IRS is coping with a backlog of historical proportions and it is impacting millions of taxpayers. According to IRS sources, as of July 31, there are still over 13 million tax returns that are to be processed. The nearly unprecedented delay is being attributed to the COVID-19 pandemic, under staffing at the IRS, and a slew of recent tax law changes. The challenge is how to navigate the IRS notices if you are caught up in this mess.

Complicating your tax life

  • You’ve filed for an extension via mail, but the IRS says you haven’t filed your return yet and issues notices and penalties.
  • You keep getting letters from the IRS after responding to initial inquiries.
  • You filed your tax return on time, but the IRS says it doesn’t have your return, even though you may have received a confirmation.

What you can do

While you may not be able to get your tax return processed any faster, there are steps you can take to stay informed and make it easier for the IRS to work with your tax situation:

  • Track your refund status. The IRS has developed an online tool, “Where’s My Refund?” that can provide updates. Find it at https://www.irs.gov/refunds.
  • Check out IRS2Go. The agency also provides a mobile app called IRS2Go that checks your tax refund status. You can see if your return has been received, approved, and sent.
  • Stay calm and keep responding. If the IRS sends you notices, keep detailed records of the notices and your timely replies. Eventually, they will get caught up. So keep good records by leaving a digital footprint and back up electronic records with paper versions.
  • Prior correspondence is your friend. When you’re replying to IRS notifications, attach copies of prior correspondence with your latest letter. Make it easy for the IRS to follow your paper trail by dating each response and keeping the most recent response on top.
  • Keep proof of delivery. Use express delivery or certified mail to confirm that the IRS receives your responses in a timely manner.

Remember that the IRS is working as quickly as it can to clear this backlog.

Organized Business Records Save Time and Money

Here are some suggestions to help you master the art of documenting and organizing your business now and in the future.

  • Document policies and procedures. Write down daily responsibilities, skills needed to complete tasks related to these responsibilities, and the location of all paper and electronic files. Appoint and cross-train backup staff to ensure these daily tasks are done.
  • Document your succession plan. It may not be for another 10 or 20 years, but documenting your succession plan is critical for both you as the owner and for your employees. Consider how much longer you plan on owning the business and who you have in mind to take over after you leave. If you currently don’t have a successor in mind, document your plan to either train or find this person(s).
  • Document your tax planning strategy. Be aware of possible tax incentives, such as credits for hiring certain workers and accelerated depreciation available for acquiring business assets. For example, for asset purchases, retain receipts and record the purchase details. These details include the type of equipment, the acquisition date, the amount of the purchase, the date you began using the equipment, and a schedule of related set-up costs.
  • Organize your daily documents. Organize your desk by shredding documents with sensitive information and scanning older papers into computer files. The most efficient method is to scan, file, and shred as soon as you are finished with a document. If you don’t have time, consider assigning document organization to specific employees and making it a task to be completed on a daily basis.

You’re busy, and you may feel that organizing your records will take more time than you have available. But spend a minute and consider how using these organizational tips may save you not only time, but money as well.

Never Take on the IRS Alone

Sleuthing your way through a tax audit by yourself is not the same as fixing a leaky faucet or changing your oil. Here are reasons you should seek professional help as soon as you receive a letter from the IRS:

  • IRS auditors do this for a living — you don’t. Seasoned IRS agents have seen your situation many times and know the rules better than you. Even worse, they are under no obligation to teach you the rules. Just like a defendant needs the help of a lawyer in court, you need someone in your corner that knows your rights and understands the correct tax code to apply in correspondence with the IRS.
  • Insufficient records will cost you. When selected for an audit, the IRS will typically make a written request for specific documents they want to see. The list may include receipts, bills, legal documents, loan agreements and other records. If you are missing something from the list, things get dicey. It may be possible to reconstruct some of your records, but you might have to rely on a good explanation to avoid additional taxes plus a possible 20 percent negligence penalty.
  • Too much information can add audit risk. While most audits are limited in scope, the IRS agent has the authority to increase that scope based on what they find in their original analysis. That means that if they find a document or hear something you say that sounds suspicious, they can extend the audit to additional areas. Being prepared with the proper support and concise, smart answers to their questions is the best approach to limiting further audit risk.
  • Missing an audit deadline can lead to trouble. When you receive the original audit request, it will include a response deadline (typically 30 days). If you miss the deadline, the IRS will change your tax return using their interpretation of findings, not yours. This typically means assessing new taxes, interest and penalties. If you wish your point of view to be heard — get help right away to prepare a plan and manage the IRS deadlines.
  • Relying on an expert gives you peace of mind. Tax audits are never fun, but they don’t have to be pull-your-hair-out stressful. Together, you and your expert can map out a plan and take it step-by-step to ensure the best possible outcome. You’ll rest easy knowing your audit situation is being handled by someone with the proper expertise that also has your best interests in mind.

4 Tax Tips for Small Business Owners – Part One

Since you can’t get away from taxes, the best thing to do is be prepared for them. If you own a small business, taxes become a bit more complicated, but there are several ways to make sure tax time is less stressful. Here are tips 1 and 2 for small business owners.

  1. Think Taxes Year Around

Thinking about your taxes all year does not seem to be a way to avoid stress, but in reality, tax planning is a year-round activity when you run a small business. If you keep up with documentation and recording requirements throughout the year, you are more likely to arrive at tax time with the right paperwork ready to go.

It is also easier to take advantage of tax savings and deductions over the course of time instead of trying to put together a package of write-offs at the last minute.

  • Keep accurate records all year
  • Save all business related receipts, both paper and electronic, and log them for easy access
  • Keep mileage logs and other expense records so they are accurate

You will find tax time much less stressful, and you will be set up to monitor changes from year to year.

  1. Keep Up with the Tax News

It may seem that the legislature does nothing, but laws do get passed every year. You need to keep an eye on happenings in the federal government that can impact your tax liability and business organization.

For example:

  • The Affordable Care Act is still rolling out. As of 2015 it applied to businesses with 51 to 99 employees and carried stiff penalties for failing to provide health insurance to employees. Penalties also applied if you did not report the type of coverage you provided.
  • Taxation of online sales is still winding its way through Congress. You need to monitor the situation, so you know if it becomes law and how it could affect you if you are an online seller if you gross more than $1 million annually.
  • The Section 179 Property Deduction was extended but not made permanent. It allows business to deduct the full amount of eligible property as expenses in the year the business began using it. “Property” includes any property used in manufacturing, transporting, and producing goods, any facility used for business or research, or any buildings used to hold livestock or horticultural products.

Tax laws change all the time; keep up with the business news for ongoing legislation or last minute tax breaks.

Disaster-Proof Your Financial Information

Planning for a natural disaster requires more than just making sure you have an escape route and a case of bottled water.  You need to realize the potential financial consequences of such events.  Here are few smart steps we recommend.

Make electronic backups of important records including:

  • Insurance policies
  • Tax returns
  • Bank and credit card account information
  • Vital records – medical, identification, etc.
  • Pictures and/or videos of your home and/or business

It is critical that you store this backup in a separate location that will be easy to access if your area suffers damage.

If you own a business, develop a contingency plan to get your business up and running after a disaster including steps so that your employees can work from home or elsewhere. Both businesses and families should consider how to maintain contact in an emergency – via phone trees or other methods – and these contingency plans should be reviewed every year to make sure they are up-to-date.