audits Archives

What to know about filing gift tax forms

Each year, Maryland residents and others are free to gift up to $15,000 per person to as many people as they would like. If an individual makes gifts in excess of $15,000, he or she is generally required to file Form 709. This is true even if a person owes no tax on the excess amount gifted because of his or her lifetime gift exemption.

Contributing too much to a 401(k)

For many Maryland workers, a 401(k) retirement account is one of the perks of their jobs. However, the Internal Revenue Service has found that some people have taken advantage of the system and are making contributions that are in excess of what is currently allowed.

The rules of rollover waivers

Generally speaking, Maryland residents and others have 60 days to rollover funds from a 401k or IRA into a new IRA. Failure to meet this deadline could result in negative tax consequences. However, there is a chance that the IRS could allow a person to avoid financial penalties for failing to complete a rollover in a timely manner. This may be possible if a bank or other financial institution makes an error during the rollover process.

IRS audits continue to decline

While many Maryland taxpayers fear audits, the Internal Revenue Service is actually checking up on fewer people. The shrinking number of tax audits has been highlighted by news coverage of allegations that President Donald Trump and his family members failed to pay hundreds of millions of dollars in taxes. In 2017, only one out of every 160 tax returns were audited, marking 0.6 percent of 245 million returns. For six years, the number of audits has declined annually, and it has now reached its lowest level in 15 years.

Specific reasons grant IRS unlimited time to pursue unpaid taxes

Statutes of limitations generally prevent the Internal Revenue Service from investigating tax returns that are older than six years. For most returns filed by taxpayers in Maryland, the IRS only has three years to audit the reported income. If the agency suspects that income has been substantially underreported by 25 percent or more, the law provides up to six years to initiate an audit and pursue taxes and penalties. Three major exceptions to these limitations, however, remove time constraints and grant the agency's civil division the power to review returns of any age.

TIGTA says IRS not using currency reports from banks

The Treasury Inspector General for Tax Administration has released a report indicating that the Internal Revenue Service makes little use of bank currency reports. Many Maryland residents are aware that if they deposit more than $10,000 in cash at any one time, their bank will send a report of the transaction to the IRS. Chances are that the IRS will never look at a particular currency report.

If you're flagged for an employment tax audit, be careful

If you're a business owner, receiving a letter from the Internal Revenue Service or Maryland State Department of Assessments and Taxation can be intimidating. It may be tempting to ignore the inquiry in hopes that it's a minor issue that can be addressed later, but that's exactly the wrong approach. The best way to minimize exposure and get back to conducting normal business operations is to immediately find out the exact nature of the inquiry.

Common income tax mistakes cost money

Small mistakes can be costly when it comes to filing state or federal income taxes. Though most people endeavor to pay as little in taxes as possible, many filers are still overpaying every year. Maryland residents can avoid such mishaps by remembering a few tips.

Tax return records need to be kept on file for over 3 years

People in Maryland might have heard that they should keep copies of their federal tax returns for three years. This guideline represents a minimum recommendation that does not necessarily protect people from all inquiries from the Internal Revenue Service. Although the agency generally has three years to decide if it is going to audit a person or require additional tax payments, some situations extend the statute of limitations.

Common tax issues that raise chances of IRS audit

Although individuals in Maryland only face a low chance of getting audited by the Internal Revenue Service, not all tax returns are created equal. The IRS uses computers to analyze tax returns and flag some for closer review based on criteria meant to identify potential problems. Self-employed income, higher-than-average itemized deductions, rental properties and home office expenses all represent categories that could cause the agency to scrutinize people's tax filings.

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