Tax Preparation: Will I Be Audited by the IRS?

The IRS audits a small percentage of tax returns every year. In 2017, the agency audited 1 million, or 0.5 percent, of all returns the IRS received. That’s a very small percentage, but there are cases where an income tax return could trigger an audit by the IRS. LongSchaefer’s tax preparation experts discuss whether or not you’ll be audited by the IRS.

Not Reporting All Income

Unreported income occurs when the IRS receives forms, but you fail to report the income with your return. For example, the IRS gets a W-2 form for wages from three employers as well as a 1099-INT form that outlines the interest you received from an investment account. You forget to report the interest income, and you failed to include some tip income on a W-2 form when you worked as a server. The higher the income you fail to report, the greater the likelihood you could be audited.

Large Increases in Income or High Income

The odds of having an IRS audit increase as your income goes up. This is particularly true of business income. Around 1.4% of businesses with income from $200,000 to $1 million were audited in 2018. That number rose to 3.2% when businesses earned an income of $1 million or more. Tax preparation and accounting experts can help you avoid an IRS audit by filing accurate returns. These firms can also assist you through the audit process should the IRS send you an audit letter.

Excessive Business Tax Deductions

The IRS tracks typical business expenses generated by certain industries. Travel expenses 20% above the norm might get a second look from the agency. You should keep accurate records for vehicle-related expenses, especially if you take a company car home for personal use. Excessive meal allowances are also a red flag for the IRS. Accurate tax preparation is one key to avoiding a potential IRS audit.

Foreign Bank Accounts

The IRS has strict rules for reporting foreign assets, particularly bank accounts. The agency requires you to fill out Form 8938 if you own $50,000 or more in foreign assets. Admitting you have foreign assets over $50,000 may actually trigger an audit because the IRS feels you may be trying to shelter certain income from taxation. Unfortunately, hiding these assets from your return may also cause an audit. We’ll walk you through what to do about foreign assets during your tax preparation.

Help Avoid IRS Red Flags at LongSchaefer

No one is guaranteed to avoid an IRS audit. They choose who to audit based on many factors. However, proper and accurate tax preparation can reduce the likelihood you’ll face an audit. Contact LongSchaefer or call (513) 245-0300 for more details about our services. 

Tax Preparation: Your Taxes Are Late. What Can You Do Now?

You didn’t realize the income tax deadline was upon you. Your individual or corporation taxes are past due! What can you do? LongSchaefer, Cincinnati’s tax preparation experts, explain the IRS process when your taxes are late.

First, File an Extension Form

The IRS gives you extensions to file your income tax returns for up to six months. Individuals and some businesses must file Form 4868, while certain businesses submit Form 7004. These forms are relatively simple. All you need is to fill out basic information and the reason why you’re filing taxes late. Tax preparation can continue as normal.

Get Ready for Tax Preparation

Once you file your extension forms, it’s time to get ready for tax preparation. Gather as many financial documents as you can, including bank statements, income statements, invoices and receipts, expense reports and receipts for business purchases, payroll statements, mileage records, and anything else you can think of. The information you collect depends on whether you’re an individual or business and how many different types of income you receive. If you received any IRS forms in the mail, gather those as well.

Figure Out How You’re Going to File Taxes

Tax preparation software makes filing taxes through the IRS extremely easy. Simple tax software is inexpensive or even free if your income is low enough. More complicated tax situations may have software packages that cost $100 to $150. Consider hiring an accountant if you have a complex tax situation, own a business, or need help making sense of this year’s tax law changes.

Tax Preparation Before Your New Deadline

The sooner you gather all of your financial information, the better. Tax preparation experts need time to go through your financial statements and records to determine what forms to fill out and how to handle your taxes. A lot of our processes are automated, so if you have online or electronic records, those are the best things for us to use. Bank statements, e-forms, and electronic receipts are fantastic tools that make our jobs easier!

LongSchaefer: Expert, Efficient Tax Preparation

Talk to LongSchaefer about filing your income tax returns. Our tax preparation experts promise efficient income tax filing based on your situation and the complexity of your financial records. Contact LongSchaefer or call (513) 245-0300 for more information.

How to Claim the Tax Preparation Fees Deduction

Spring tax preparation continues here at LongSchaefer, even though the Coronavirus outbreak has us working a bit differently. We get a lot of calls and questions at this time of year, and one of them revolves around paying for tax preparation fees. The IRS allows you to deduct fees from your income to make your tax bill lower. In today’s blog from LongSchaefer, we explain how this works.

What You Can Deduct

Tax preparation fees come in many forms. The IRS is specific when it comes to the fees you pay to help complete your tax returns. 

You can deduct fees associated with:

  • The cost of buying tax preparation software
  • Fees for preparing a tax return through an accounting firm
  • The cost of tax-related books and publications
  • Advice on tax planning for next year
  • Legal counsel on tax issues
  • Fees for representation during the tax audit process
  • Fees for representation on tax collections procedures from the IRS
  • Legal fees for representation in a criminal tax matter

LongSchaefer’s tax experts note that you must keep receipts for these tax preparation fees to prove you actually spent the money on them. Some tax prep companies and accounting firms get their fees as part of an income tax refund, if you receive one.

Where to Take This Deduction

How you take the tax preparation fees deduction depends on your filing situation. LongSchaefer makes sure you note the deduction properly when we fill out your tax return. 

  • For a sole proprietor, fees are on Schedule C on the line for legal and professional fees. 
  • Rental income and expenses are deducted on Schedule E on the line for legal and professional fees.​
  • Farm income and expenses are deducted on Schedule F under the section for other expenses.​
  • Individual taxpayers use Schedule A, line 22, as a miscellaneous itemized deduction.

Individuals must have itemized deductions that are greater than the standard deduction to take advantage of this situation. It doesn’t matter how high or low the fee is. You could spend $50 on do-it-yourself tax preparation software for individuals or invest $1,000 in an accountant to handle your small business taxes. No matter what, the IRS counts those fees as a deduction.

How This Deduction Works

The tax preparation deduction, like any deduction, lowers the amount of income that the IRS uses to calculate your taxes. For example, you show a gross income of $150,000 as a sole proprietor of a business. You pay your accountant $500 to handle your tax preparation. The income the IRS calculates is now lowered to $149,500. 

$500 over the course of $150,000 doesn’t sound like a lot. But, every deduction counts. If you have enough deductions, you could lower your tax bracket and pay fewer taxes as a percentage of your income.

Tax Preparation Fees & LongSchaefer

LongSchaefer understands your tax situation and can pinpoint how to take advantage of deductions. Talk to our tax preparation experts if you need help navigating your income tax returns this year. Contact LongSchaefer or call (513) 245-0300 for more details.

How Filing Taxes Electronically Works

Nearly 156 million Americans filed their taxes electronically in 2019. That’s 14 million more than in 2009. Rather than mailing your paper forms to the IRS and waiting for a check to arrive, filing electronically keeps everything simple. Today’s blog from LongSchaefer explains how filing taxes electronically works.

Everything on Computer

Processing your income tax return and filing electronically means everything is done on the computer. When using electronic filing, many taxpayers don’t have to send forms to the IRS, particularly W-2 and 1099 forms. Some payroll companies keep electronic records that allow you to upload information automatically rather than filling in blanks. This process increases accuracy when LongSchaefer completes your tax return by computer.

Secure Connection to the IRS

Once we’re done preparing your return, it gets transmitted to the IRS through a secure connection. Sending the electronic files takes just a few moments instead of a few days through the mail. The IRS usually begins accepting returns in late January. If you come into our offices and we complete your return before then, we’ll keep your files on hand and then send them to the IRS on the first day the agency accepts returns. 

Notice of Acceptance of the Return

Within 48 hours, the IRS provides a notification that they accepted the return. We’ll contact you when we receive this confirmation. This is the first step of three if you’re expecting a refund. At this point, you can check the IRS website to find out when the agency approves the refund and then sends it. You’ll see a refund within 21 days in most cases.

Making Payments

Filing an income tax return electronically also means you can make payments electronically. You can choose which method you prefer, either with a direct payment made via a bank account or inputting your credit or debit card to pay a tax bill. The IRS can work with you and use an installment plan, provided you qualify and fill out the correct forms. LongSchaefer’s tax preparation pros guide you to select the best option for your situation if you must make payments to the IRS.

Tax Preparation at LongSchaefer

LongSchaefer is a firm believer in working smarter, not harder. We process forms and filings electronically and securely through our CPA/Tax Document Portal as well as through Tax Caddy. Electronic forms reduce errors, improve speed, and make processes more cost-effective for you and us. Contact LongSchaefer or call (513) 245-0300 for more information.

Five Reasons Why Hiring an Accountant Makes Sense for Tax Time

Do you dread doing your taxes? It’s an annual ritual we all have to deal with, whether you worked one job with a single W-2 or owned 50 rental properties that all generated revenue for your business. In today’s blog from LongSchaefer, your tax preparation expert based in Cincinnati, we explain five reasons why hiring an accountant makes sense for tax time.

Complexity

Take just one look at a tax form and the accompanying instructions. They’re complicated, to say the least. We totally understand: Tax laws are a beast. A professional tax preparation company like LongSchaefer knows how to navigate complex tax codes, identify specific tax situations, and submit the correct forms to the IRS. Let us do the hard work for you!

No Time

Your time is valuable. You may find that it’s more economical to have a professional tax preparation company do your taxes for you. If you can’t find time to delve into your taxes because you would lose income, then hiring a firm like LongSchaefer makes perfect sense. You could discover that you simply don’t have time to do your taxes, and you’re expecting a big refund. Investing in a tax accountant pays off because you could get your refund faster without spending an enormous amount of time navigating tax changes from the previous year.

Business or Self-Employed

If you own a business or you are self-employed, tax time can be especially complicated. If you don’t have income taxes withheld from a regular paycheck, you’re liable for paying taxes to the IRS. However, there are tax advantages to owning your own business or being self-employed that you don’t want to overlook. A tax preparation company like LongSchaefer helps you optimize your tax refund by finding tax deductions, applying tax credits, and handling the IRS.

Kids Entering College

Your son or daughter is about to enter college, which means everyone must fill out the Free Application for Federal Student Aid (FAFSA) when trying to get financial aid. You might find out that your child has assets or income that could reduce the amount of financial assistance your son daughter qualifies for. LongSchaefer’s tax preparation professionals show you what you can do to file an accurate tax return ahead of helping your child apply for college financial aid. 

Multiple Income Streams

Perhaps you’ve had a regular job for 20 years as a career. You supplement that income by owning three rental properties. You also have thousands of dollars invested across savings accounts, bonds, mutual funds, and stocks. Each of these types of income is taxed differently. If you fail to identify all of your types of income, it could delay your return or you could pay penalties. Tax preparation from LongSchaefer identifies various income streams and understands how they affect your return so that you can file accurately.

Tax Preparation by LongSchaefer

LongSchaefer, one of the top Cincinnati accounting firms, specializes in tax preparation for individuals and businesses. We file accurate tax returns you can rely on, especially if you don’t have the time or you don’t understand the IRS tax code for your situation. Contact LongSchaefer or call (513) 245-0300 for more details.

LongSchaefer Explains Tax Changes for Filing Your 2019 Income Taxes

Individuals and some businesses have until April 15, 2020, (S-Corporations and Partnerships have a filing deadline of March 16th or October 15th with extensions) to file their 2019 income taxes or request an extension of time to file through the IRS. Every year, Congress seems to change the tax code. Filing your 2019 taxes is no exception, thanks to the tax reform package. Today’s blog from LongSchaefer explains the major tax changes for filing your 2019 income taxes for individuals.

Tax Relief for Individuals and Families

Standard deductions nearly doubled for everyone. Deductions help you lower the amount of income that is subject to income tax by the IRS. If you’re single, the standard deduction is $12,200 instead of $6,350. Married couples filing their taxes together have a standard deduction of $24,400 rather than $12,700. LongSchaefer can show you how to take advantage of increased deduction amounts. 

Improved Tax Credits

Tax credits also increased for filing 2019 income taxes. Tax credits may actually raise your refund amount. The child tax credit increased from $1,000 to $2,000 per child. Also, heads of household may be able to claim $500 in tax credits for each individual they support that is not their child. 

Tax Rates and Brackets

Congress changed the tax rates and brackets, lowering the tax rate for many individuals and joint filers.  The 2019 federal income tax brackets (for taxes due in April 2020, or in October 2020 with an extension) look like this:

Tax rate

  • Single
  • Married, filing jointly
  • Married, filing separately
  • Head of household

10%

  • $0 to $9,700
  • $0 to $19,400
  • $0 to $9,700
  • $0 to $13,850

12%

  • $9,701 to $39,475
  • $19,401 to $78,950
  • $9,701 to $39,475
  • $13,851 to $52,850

22%

  • $39,476 to $84,200
  • $78,951 to $168,400
  • $39,476 to $84,200
  • $52,851 to $84,200

24%

  • $84,201 to $160,725
  • $168,401 to $321,450
  • $84,201 to $160,725
  • $84,201 to $160,700

32%

  • $160,726 to $204,100
  • $321,451 to $408,200
  • $160,726 to $204,100
  • $160,701 to $204,100

35%

  • $204,101 to $510,300
  • $408,201 to $612,350
  • $204,101 to $306,175
  • $204,101 to $510,300

37%

  • $510,301 or more
  • $612,351 or more
  • $306,176 or more
  • $510,301 or more

What do these figures mean? Your tax rate may be lower than last year’s if you fall into these thresholds, provided you didn’t have a substantial jump in your income from 2018 to 2019. LongSchaefer can show you the implications of being in a particular tax bracket in terms of how you can optimize your tax return or tax bill.

Eliminations and Reduced Limits

The tax changes eliminated the penalty for not having health insurance. Unfortunately, the law also eliminated the personal and dependent exemptions that amounted to $4,050. There is also a cap of $10,000 you can deduct for property, income, and sales taxes on a state and local level. The amount of mortgage debt you can use as an itemized deduction is down to $750,000 instead of $1 million. LongSchaefer can help you navigate these new figures, so you get the most out of your tax filing.

Tax Preparation and Planning by LongSchaefer

These tax changes are just a few of the many developments that will affect tens of millions of Americans this year. The experts at LongSchaefer can make tax time less painful for you, whether you owe income taxes to Uncle Sam or if you’re expecting a refund. Contact LongSchaefer or call (513) 245-0300 for more information.

May 2020 COVID-19 Update

In order to comply with the Ohio Health Department Order & CDC social distancing recommendations, our offices are closed until further notice. Rest assured that our established protocols and available technology will allow us to provide the same level of service and quality you expect from LongSchaefer during this time.

The SBA has announced details of how it’s helping small businesses through the Coronavirus outbreak. The IRS is sending payments to families affected by this crisis. 

Please click on our Coronavirus information pages for more information.