Archives for March 2014

Warning Signs of an Audit

We know that with tax season in full swing there is another side that will go unnoticed until April. Audits are a part of tax time, and they begin as soon as tax season is closed. Many of us don’t worry about how an audit might affect us. Is there a way to figure out if our tax return might trigger one of those red flags? Let’s look at some triggers that the IRS may find interesting.

There are typical risks that the IRS looks for when deciding if a return needs an audit. One of them is high income. If your income exceeds the $200,000 mark then you have a great chance of an audited. As the income become greater, then so does your chance of an audit. There is nothing more to it. You made so much money that you have earned the special right to a red flag.

Another part of the return that is scrutinized is deductions. The IRS tracks the average deduction taken by individuals in certain tax brackets. Anything above that average can trigger a flag. If you are deducting large items from charitable donations, etc., such as a house or sold off large amount of stock, then specific form are to be filled out and filed with your tax return. Any charitable donation exceeding $250 in one transaction requires paperwork from the charity or organization stating the specifics of the donation.

Another group that is targeted for audits is entrepreneurs. There is something about people running their own business that screams red flag to the IRS. If your business is run from home, the chances are even higher than if you own a place of business. Business expenses that are claimed too aggressively will also cause problems.

The last group is people that own a large amount of real estate. Anyone with a vacation home, especially if the house is rented out, can cause another red flag. Not all vacation home expenses can be deducted and the limitations need to be known.

Remember that lack of information can be just a harmful as too much information. Leaving unanswered questions will also cause problems.


IRS Releases Rollover Guidelines

For many people, a 401(k) offers a way to save money for retirement. Last year was the first year that people under the retirement age were allowed to rollover investments into an IRA account. The IRS has issued guidelines to employers whose 401(k) plans offer Roth accounts rollovers for contributors younger then retirement age.

The key part that governs the rollovers for participants under the retirement age of 59 ½, is how the rollover occurs. Participants can only rollover money into an IRA account directly, and because the distribution of funds is not allowed, the 60-day rule does not apply.

The IRS is allowing time for the sponsors of such plans to amend their plans to allow rollovers. The amendments must be made by December 31, 2014. This time can also be used to allow sponsors to have participants elect to have salary deferrals into their Roth.

The IRS advises sponsors on the following to make the process simpler and easier to implement:

  • Restrict the types of contribution and eligible balances for Roth rollovers. This can help avoid the burden of tracking all the distributions for some or all of the Roth balances.
  • Have a clause where sponsors can eliminate the in-plan rollover at any time as long as it does not discriminate in favor of highly compensated employees.
  • Favorable tax treatment only applies to Roth distributions made after five years front eh date the Roth was established.

Empowering People to Tell the Truth

Truth is important to everyone, but sometimes it is hard to tell someone, especially if the person is in a position of power. In business, open and honest communications between a worker and supervisor is crucial to a high-functioning organization.  Workers have to have a certain amount of courage to stand up to a superior, and deliver information that can ruffle feathers. It is important as a supervisor to have people that are willing to tell you the truth. Is there a way to encourage truthfulness in employee? Below are some traits that employers can develop with their staff to encourage candor and open communication in the work place.

From our working experience, we all know what drives us to keep quiet, and fear is top of the list. Many things can create this fear in workers, including:

  • Bullying, abrasive, or abusive behavior
  • Closed-mindedness
  • Complacency
  • Overextended and too busy to listen
  • Avoidance of Conflict

These all lead to the breakdown in communication, but there are steps we can take to help build the workers up to be more open and receptive. It is the responsibility of leadership to overcome these breakdowns, and to build a better communication environment so workers feel safe and comfortable in speaking the truth without fear.

To ensure open communication and candor in an organization or business the following are steps you can take to have appositive impact for you and your workers.

  • Be consistent and aware of the signals you send.
  • Do not tolerate disrespectful or bullying behavior in any of the works, including yourself.
  • Understand the influents ye you have on other people and use your powers for good.
  • Actively listen to people, and make sure they know you are listening and you appreciate what they say even if you don’t agree with it.
  • Set up clear boundaries, and make sure they know what is off limits to change.

Establishing a clear, open, reliable communication with staff members will be invaluable to your company. Foster the development and watch the results grow.


New List of Tax Scams

Every year there is a new fraud that is out to take people’s hard-earned money. People who want to make free money develop these schemes. They have various ways to contact individuals and solicit money from them. The IRS has created a list of twelve frauds that target people especially during tax time.

The list is:

  • Identity theft
  • Phishing
  • False Promises of Free Money from Inflated Refunds
  • Tax Return Preparer Fraud
  • Hiding Income Offshore
  • Charitable Organization Impersonation
  • False Income, Expenses, or Exemptions
  • Frivolous Argument
  • Falsely Claiming Zero Wage or Using a False Form 1099
  • Abusive Tax Structure
  • Misuse of Trusts

Each year, victims are scammed because the they ignore the warning signs. With the newest type of fraud that made the list is pervasive telephone scams. Many times the scams look or sound official, but remember that if the IRS is contacting you they will not ask for any part of your social security number, or even give you the last four digits.

The number one threat to taxpayers is identity theft. The fraudsters are not just trying to get your money, they want to use your information to steal from others. Many of the new scams are focusing their efforts on immigrants. They have threatened to arrest or deport the individual in they do not pay promptly.

Of you feel that you are a victim of a fraud contact the Service at 800-829-1040, the Treasury Inspector General for Tax Administration at 800-366-4484, and the Federal Trade Commission using the FTC Complaint Assistant at