When doing taxes, be aware of IRS red flags. Certain activities can trigger an audit. While you may not be evading taxes, you should avoid not make your taxes look like you may be.
If you are currently living and working in the United States, one thing you should know is how to avoid tax audit red flags. You know that you must unfortunately pay taxes every year. The government must take a portion of everyone’s income in order to have money to run its many programs. The Internal Revenue Service, or IRS, is the agency in charge of collecting people’s taxes and monitoring who has and has not paid their taxes. If you want to avoid getting special attention from the IRS, here are a few actions, or “red flags,” you should avoid.
Avoid tax scams by realizing many people will try to steal your personal information and identity by impersonating themselves to be the IRS to get you to pay them taxes.
Among other things in this economy, one must look at avoiding tax scams and keep alert of individuals who seek to separate you from your money. A penny saved is a penny earned. This concept is a reminder that hard work pays off when you save the money you earn. Saving it will help you down the road. Whereas many of the things you would want to spend your pennies on only cover your temporary needs and wants.
Sometimes, taxable income is overlooked. Sometimes deductions are erroneously applied for. These are the type of transactions the IRS auditing process look for. If you are caught, you not only will be liable for the taxes, you could be subject to penalties. It pays to know the red flags that triggers tax audits.
Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.70% of all individual tax returns in 2016. So the odds are pretty low that your return will be singled out for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.
In order for you to keep more of your paycheck, understanding taxes and the taxation process is a must. Working for your paycheck isn’t so bad, if you like your job. Getting your paycheck is one of the most joyous moments But, by the time you get that delicious pie, it’s already been cut up, ample slices removed. It’s different for everyone, but everyone who earns an income must pay federal income tax.
Taxes seem a dreadful beast that only become more dreadful as April 15 looms in the distance. However, taxes pay for all kinds of things in our everyday lives, from government projects to income for government officials. It gets more difficult when you have a business or anything related. It is advisable to keep up with the tax codes with books related articles on your business activity. Unfortunately, the tax system is something of a monster that Einstein himself would have trouble understanding. Do your taxes wrong and you may need to hire an IRS audit attorney.
To avoid such circumstances, let’s learn more about taxes:
You have to file your taxes by April 15 every year, but really the tax process is happening constantly all year long, and it all starts once you get hired and earn a salary. As soon as a company hires you, you have to fill out tax forms listing all of your withholding allowance information, which includes things like child care expenses, marital status, and the number of dependents in your household.
Your employer uses this information to determine how much money it needs to withhold from your paycheck for taxes. At the end of every pay period, your company takes the money it withheld from you and the rest of your coworkers and deposits it in the Federal Reserve Bank. Now imagine all companies doing this for all of its employees and you can pretty well imagine the stream of income that the government receives.
Estimating Your Taxes
As long as you have your pay stubs and a calculator, you can generally estimate the amount of taxes you’ll pay for the year.
Assess your gross income. This includes your normal income, your interest income, and any pensions and annuities.
Subtract adjustments from your gross income. Adjustments include everything from education loan interest that you’ve paid to retirement plans and alimony to moving expenses. Talk to an accountant or a tax relief attorney to figure out all the deductions you’re eligible for. The difference you get is known as the adjusted gross income.
From the adjusted gross income, you subtract itemized deductions or the standard deduction, whichever number is greater. Itemized deductions include medical expenses, home mortgage interest, state taxes, and anything you might have given to charity.
From that number, deduct personal exemptions, and you get your taxable income.
From here, things get a little tricky. The U.S. operates via marginal tax rate, so you pay a certain amount based on the tax bracket you are in. If your taxable income is under $100,000, check the IRS tax tables. If it’s over $100,000, check the tax rate schedule. Referring to either gets you your gross tax liability.
Subtract any credits from the gross tax liability to get your net tax, which is how much you need to pay or how much you’ll get back.
Believe it or not, this is just the basic calculation. It gets more in-depth based on your marital status and the money you make. If you experience difficulties paying for your taxes, you may need to hire a tax lien attorney. Don’t be afraid to contact a professional if you need help at any point in the process. It’s a slippery slope but every citizen needs to climb it.