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Accounting Bookkeeping CPA

All About IRS: Tax Filing and Audit

All About IRS: Tax Filing and Audit

Accounting, Bookkeeping, CPA

What is IRS?

The Internal Revenue Service also famously known as the IRS is a bureau of the US Department of Treasury. The IRS is responsible for collecting tax revenue and assessing finances for companies operating in the US.

The IRS has gone through several reorganization and modernization changes, over the years since it’s foundation back in 1862, during this time it was renamed and experienced a change in authority by being placed under the Department of Treasury, USA.

IRS is very clear in its mission. The bureau’s work is to “Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

What does IRS do?

IRS aims to carry out the tax laws in the US. It evaluates and collects taxes, assists taxpayers understand and meet their tax responsibilities and helps implements tax law to ensure everyone pays what they rightfully owe the state.

The IRS executes three main functions:

  1. Administer tax laws
  2. Process tax returns and collect revenue
  3. Taxpayer service
  4. Tax law enforcement

Collecting taxes

One of the most significant responsibilities of the IRS is to assess and collect taxes on behalf of the government. The sum consists of income taxes, employment taxes, business income taxes, excise taxes and estate and gift taxes etc.

Along with the timely collection of taxes, they are also in authority for issuing tax refunds, which an individual or business can collect as a result of the overpayment of the due tax amount.

Providing services to taxpayers

Another central responsibility of the IRS is providing services to taxpayers in the form of guidance and help regarding tax laws and legal matters. These services can be availed through the IRS website, its telephone helplines, IRS Taxpayer Assistance Centers and volunteer tax assistance.

Enforcing tax laws

A final responsibility of the IRS is the implementation of tax laws. The IRS identifies and pursues those who have underpaid/not paid their taxes, whether as a result of a calculation error or deliberate criminal activity. These examinations typically take the form of either correspondence or field examinations. They carry out criminal investigations and supervise tax-exempt organizations and qualified retirement plans. It is the responsibility and accountability of the IRS to ensure all companies and individuals pay their fair share on time and accurately.

The IRS and Audit

As part of its tax law implementation mission, the IRS audits a hand-picked portion of income tax returns each year. In the fiscal year 2020, the agency audited 509,917 tax returns.

The reasons for an IRS audit vary according to some factors which may also increase the chances of examination for some companies. The chief amongst these is higher income levels. Other factors that may prove to be red flags for an audit include; not declaring the right and accurate amount of income, claiming a higher-than-normal number of business-related deductions, making excessively hefty charitable donations compared to income, and claiming rental real estate losses. However, no single factor determines who does or does not face an IRS audit each year.

The IRS and Taxes

Companies can pay their due taxes to the IRS through the following ways:

  1. An electronic funds transfer from your bank account
  2. A debit/credit card
  3. A same-day bank wire or
  4. An electronic funds withdrawal at the time of e-filing your return.

There are other payment options available as well for businesses and individuals who cannot mare electronic payments. They can pay through:

  1. A personal check
  2. A cashier’s check, or
  3. A money order in the name of the US Treasury.

 However, they need to be sure that it contains the following information:

  • Company’s name and address
  • Phone number
  • Social Security number (where applicable)
  • Employer identification number (where applicable)
  • Tax year
  • Related tax form or notice number

Businesses can even pay in cash if they wish however, with each payment method all terms and conditions must be followed to avoid any future problems or delays as this is a sensitive legal matter.

Out of all of these options, the best and most efficient, quick and safe way is to use on of the electronic payment methods to clear the payment.

Do we really need IRS?

IRS claims to be one of the worlds most efficient tax administrators. The taxes that they collect are used to fund public utilities like national defense, aid for veterans, Social Security, medical care services, foreign affairs, community development and other services that the government provides.

IRS performs an important function for the US government, keeping all organizations, companies and business individuals in line with the tax laws. The bureau collects the necessary funds that the state needs to provide public services to its inhabitants and makes the functions of the entire federal government possible.

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Accounting, Audit, Bookkeeper, Bookkeping, cpa, IRS, Online CPA, Tax Deductions, Tax filing, Taxes

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Accounting Bookkeeping CPA

What’s the Penalty for Not Filing Taxes

What’s the Penalty for Not Filing Taxes

Accounting, Bookkeeping, CPA

Most, if not all, taxpayers don’t intentionally file their taxes late. There are many good reasons why companies often fail to file their taxes on time however, it’s important to file tax return as soon as possible, even if a company can’t pay them yet.

Penalties for not filing taxes by IRS

There are two parts to filing taxes:

  1. The actual tax returns
  2. The payment of the taxes owed

If these are not done by the IRS’s deadlines, there are two penalties that will be charged.

  1. Failure to file taxes

In case of failure to file your tax return with the IRS by the deadline, IRS will charge 5% of the unpaid taxes every month until the income tax return has submitted. The maximum penalty will not surpass 25% of the unpaid taxes.

In case the tax return hasn’t been filed within sixty days of the deadline, the lowest penalty for failure to file is $210. If the amount of owed taxes is less than that amount, the penalty is 100% of the total tax bill.

2. Failure to pay taxes

If federal tax return paperwork is filed but tax bill hasn’t been paid on time, the IRS will charge a penalty of 0.5% of the unpaid taxes every month.

In case where you fail to file your tax return along with not having paid any taxes due by the deadline, the penalty charged per month for both is 5%. In all cases, penalties will be stopped at 25% of the year’s tax bill.

Failure to file and pay your company’s taxes is considered a federal crime. The IRS has an established administrative penalty schedule in place for delayed filing, but the longer you wait to file, the bigger the risk of potential civil or criminal penalties.

What happens if you don’t file taxes at all?

The IRS will alert you about this failure in increasingly direct ways.

1. You’ll get reminder letters.

2. You’ll start acquiring penalties.

3. Your assets may be levied.

4. The IRS will file for you.

5. There might be legal consequences.

What to do?

If deadline is over, the IRS may file a “substitute return” for you. However, as it is very well understood, the IRS will not be looking to save you any money and a substitute return will not contain any of the standard deductions your accountant would naturally include in your tax return. Working example, a substitute return only permits one exclusion: single or married filing taxes separate, so you will end up with higher tax liability than if you would have just filed.

The bottom line is, there are several reasons to file your tax return even if you cannot pay, including:

  • Avoiding or reducing the “failure-to-file” penalty
  • Avoiding a substitute return being filed by the IRS, and availing your adjustments, deductions and exemptions.
  • Starting the act of limitations for a possible audit of your return.
  • Starting the act of limitations for collection of the tax, interest, and penalties on your return.

Whenever IRS finds out that you owe them money, they will send you a bill called a “Notice of Tax Due” and “Demand for Payment”. This document lists the taxes you owe, along with interest and penalties. Because interest and penalties continue to accumulate, you should pay as soon as possible.

Payment Options and Exemptions

It’s smart to always pay as much as one can, to decrease the amount of interest and penalties. Once the payment is made you can write or visit the nearest IRS office and inform them about your situation. Companies can pay their due taxes to the IRS through the following ways:

  1. An electronic funds transfer from your bank account
  2. A debit/credit card
  3. A same-day bank wire or
  4. An electronic funds withdrawal at the time of e-filing your return.

Based on your situation, the IRS may offer one of the following resolutions to paying your bill:

  1. Installment Option

IRS may agree that you make monthly payments under an installment agreement. This lets your full payment to be compensated in smaller, more manageable chunks.

  1. Temporary Delay

The IRS may give you the option of temporarily delaying the collection of your bill. The condition is if they determine you really cannot pay any of your tax debt because of a logical. The IRS will however be on their toes and continue to evaluate your ability to. They may also file a “Notice of Federal Tax Lien” to protect the government’s interest in your assets.

  1. Offer in Compromise

The IRS has the option to settle your unpaid tax accounts for less than the full amount of the due amount if you qualify for an “Offer in Compromise”. This applies to all taxes, interest and penalties. An Offer in Compromise is the last option and is only considered after all other payment alternatives have been checked.

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Audit, IRS, IRS Penalty for not filing, penalties for late tax filing, Tax filing

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