TAXING TIMES IRS MAKING MORE HOUSECALLS.Byline: BARBARA CORREA Staff Writer You've been warned. The Internal Revenue Service says ``enforcement action against individuals'' is on the rise. Translation: The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. is auditing more people. Accountants across Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, have noted an uptick Uptick A transaction occurring at price above its previous transaction. In order for an uptick to occur, a transaction price must be followed by an increased transaction price. in audits, but they say there's no reason for taxpayers to be scared if they follow this basic advice: Prepare a tax return that won't attract attention. IRS visiting a home near you According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the IRS, audits of individual returns rose six percent in 2006 from the previous year to 1.2 million, the highest level since 1998. Field exams -- traditional, sit-down audits where an agent actually comes to your house with a big briefcase In Windows 95/98, a system folder used for synchronizing files between two computers, typically a desktop and laptop computer. Files to be worked on are placed into a Briefcase, which is then transferred to the second machine via floppy, cable or network. -- were up 23 percent in 2006. One in sixteen millionaires faced audits last year, and audits of those making over 100,000 increased 18 percent, to 257,000 taxpayers. Luckily, most red flags on a tax return are fairly easy to correct. One thing Ariel Drachenberg, a tax partner at Lucas, Horsfall, Murphy & Pindroh in Pasadena, sees frequently is people just putting the wrong information on the wrong line or the wrong form. ``Especially with some of these computer programs, (clients) have in their mind that they should get a certain deduction, so they just put that in.'' For instance, people sometimes claim a head of household filing status when they are not entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to, said Mary Ann Quay QUAY, estates. A wharf at which to load or land goods, sometimes spelled key. 2. In its enlarged sense the word quay, means the whole space between the first row of houses of a city, and the sea or river 5 L. R. 152, 215. , co-managing partner at Vicenti, Lloyd & Stutzman, an accounting firm in Glendora. Head of household status is more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. than a single filer, and filing status is one thing the state of California tends to pay attention to, she said. Single filers don't qualify as head of household unless they are a single parent with minors living with them more than half the year, but sometimes both parents will claim it erroneously er·ro·ne·ous adj. Containing or derived from error; mistaken: erroneous conclusions. [Middle English, from Latin err . Watch out for those deductions Other basic red flags would be any obvious discrepancy DISCREPANCY. A difference between one thing and another, between one writing and another; a variance. (q.v.) 2. Discrepancies are material and immaterial. between expenses and income, such as high mortgage payments and low income. ``If they have itemized deductions Itemized Deduction A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year. of about 44 percent of their adjusted gross income, then that to me is a real red flag,'' said Stephen Rousso, a CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. in Sherman Oaks. He said keeping below the 44 percent limit is one way not to draw too much attention to your return. Here are some other tax reporting pitfalls that taxpayers should know going into 2007: RENTAL PROPERTY: One very common error people make is thinking that owning rental property qualifies them for a real estate professional deduction. Drachenberg said that to claim that deduction, filers can't earn their main income from some other profession. ``That's very hard for a physician, or someone with an 8-to-5 type job,'' he said. FLIPPERS n. 1. A type of shoe with a paddle-like front extending well beyond the end of the toe, used an aid in swimming (especially underwater). : People who bought and sold real estate during the housing boom need to be aware of the tax implications, Drachenberg said. ``Whether it is a business, for schedule C, or an investment, schedule D, would be determined by the number of transactions. If someone flipped once, you would have to report the capital gains on schedule D. If you do more than four, the IRS may consider that a separate business.'' CHARITABLE DONATIONS: Starting this year, claims of charitable donations under $250 need to come with a written receipt, said Stephen Rousso. ``A lot of people are used to taking X amount of dollars (as a deduction) ... that's going to catch some people.'' BUSINESS EXPENSES: Business-related expenses like meals and mileage are notorious targets for the IRS. ``Keep mileage logs,'' Quay said. ``You don't have to have the odometer odometer (ōdŏm`ĭtər), instrument provided in an automotive vehicle to indicate the total number of miles that have been traveled. readings, but you need to show dates, where you went, the number of miles and why it was business-related. A lot of clients write it right on their calendars. If you need to reconstruct re·con·struct tr.v. re·con·struct·ed, re·con·struct·ing, re·con·structs 1. To construct again; rebuild. 2. it later you can do a Mapquest search.'' She said a lot of people just guess, or use the same amount they did the previous year, which won't hold up under IRS scrutiny. HYBRID VEHICLE For other types of "Hybrid Transportation", see . A hybrid vehicle (HV) is a vehicle that uses two or more distinct power sources to propel the vehicle such as: BUSINESS OWNERS: ``There's still quite a bit of sole proprietor proprietor n. the owner of anything, but particularly the owner of a business operated by that individual. PROPRIETOR. The owner. (q.v.) schedule C audit,'' said Drachenberg. He said he thinks that's because it's an easy audit to process. He also cautioned that he has been seeing more S corporation audits in the last 18 months, probably a result of more business owners converting to S corporations to avoid accurately reporting self employment income. Rousso also said he had seen more interest in that area. ``S corporation people are saying they're not paying themselves a salary, that instead of taking salary they are taking distributions. That's what the IRS does not like,'' he said. TELEPHONE TAX CREDITS: Rousso also notes a telephone tax credit available this year. ``You can go back through your bills from March, 2003 to July of 2006 and add up all the excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. on the bill, fill in the form that goes on your return and get the amount refunded. ``I've heard that people who have actually checked found this is well more than $100 available if they want to go to the trouble.'' And if you end up owing anyway? Stephen Nestor, a former IRS collections officer who now handles settlements for taxpayers, said a new rule this year may limit your options if you do owe the government money. Over the summer, the IRS started charging a 20 percent fee as part of the settlement process. For example, if you owe $100,000, and you offer to settle the debt by paying $10,000 to the taxman, you would have to put down $2,000 for that offer. ``If it gets rejected, the IRS keeps the $2,000 and you still owe the amount and it's tough luck,'' he said. Nestor said he sometimes runs into people who have not filed a tax return in 15 years. Many of these individuals are tax protestors who think they shouldn't have to pay income taxes. When the IRS catches up with them, it comes up with a settlement based on current income levels -- and that income includes home equity. In that case, pity the poor protestor living in a half a million dollars in equity. ``If you have someone who just hasn't paid for years, their policy is to go back six years based on current income. I've had some with big (home) equity -- they got caught and they can't do a settlement. I say, tough luck.'' barbara.correa(at)dailynews.com (818) 713-3662 How long do you really need to keep receipts and records? For most people, it's three years, though some accountants recommend that Californians keep them an extra year because of special state laws. But if you: -- Do not report income that you should and it is more than 25 percent of the gross income shown on your return, then the IRS has up to six years to come after you. -- File an outright fraudulent return, the IRS can take as long as it wants to catch up with you. -- Do not file a return, the IRS can take as long as it wants to catch up with you. Source: Internal Revenue Service CAPTION(S): box Box: How long do you really need to keep receipts and records? (see text) |
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