If there is a filing requirement, taxpayers are required by law to file an income tax return. It has been found that the IRS and Franchise Tax Board for California state income taxes often make errors in computing the tax owing. This can be from a variety of administrative errors to faulty interpretation of the law as compared to the facts of the matter.
By way of example if you dont file a tax return the IRS will prepare one for you using a Substitute Filed Return (SFR). The IRS may have all the income information from various filed information returns such as interest earned or 1099 filings (report of income for independent contractors and others).
However they will not have the expenses or deductions you are entitled to. Thus, if you do not file a tax return, the IRS will do it for you and not include all deductions that you are entitled to. Once the tax is assessed it will go to the collections department to collect even though the tax liability is incorrect. The following tax tips offer an example of how this works.
Lets say a taxpayer was a building contractor but didnt file his return when due:
His income for the year was $200,000 (reported by his customers to the IRS on 1099s) and his expenses were $150,000.
This would be a profit of $50,000 which would form part of his taxable income.
If requests and demands to file a tax return were ignored, the IRS will prepare a return using the power of the Substitute Filed Return (SFR) provisions.
As the IRS only knows the income side of the ledger, they will report taxable income of $200,000.
The tax liability will be enormous as no expenses were taken into account.
In addition, as the tax owing is so large it will attract a lot attention from the collections department. This IRS tax problem will not go away without dealing with the missing tax return. In fact, the IRS will escalate their collections actions including wage garnishment, tax liens, levies and asset seizure.
Not filing a tax return can be very costly due to incorrect taxes, interest and penalties. It could increase your tax bill by more than 25%.
IRS tax help is available from an experienced tax attorneys and CPAs. They have the know-how to respond to every type of IRS or California state notices and the course of action to file a delinquent return. Put a tax professional on your side to save yourself a lot of grief.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, offer a complimentary initial consultation. Please call 626-440-9518.
About John Spurgeon & Associates
John Spurgeon & Associates is a professional services firm located in Pasadena, California with a focus on tax law and related accounting services. They have extensive experience with federal and state income taxes, payroll taxes and sales taxes. They represent business, non-profits and individuals against the IRS and the Franchise Tax Board (California State Taxes). As both tax attorneys and Certified Public Accountants they offer a broad range of tax related services.
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