You might have a new friend request on social media: The Internal Revenue Service (IRS). According to a recent article, the IRS is currently looking for a way to catch tax cheaters through social media platforms.
Those in Maryland or anywhere else who receive an IRS audit notice may feel anxious or scared. The first step that a taxpayer should take is to read the notice to determine what the IRS is asking for. It is also important to note that a person should not automatically assume that he or she owes money to the government. Instead, it may be best to research the situation fully to confirm claims made in the notice.
If the IRS suspects that a Maryland taxpayer or anyone else isn't being honest on a tax return, the agency may initiate an audit. In 2016, 0.7 percent of all returns were selected for audit. In some cases, audits may be initiated on a random basis. There are seven common reasons why the IRS may want to further examine an individual's tax return. One of those reasons is a failure to report income earned on a freelance basis.
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.
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.
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.
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.
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.
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 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.