Despite all the warnings about tax scams, consumers are still falling victim to these types of fraud. Tracy Coenen talks on CNBC about the top five tax scams that consumers should be aware of.
Income tax returns and supporting information such as W-2s and pay stubs are the most common and basic documents which evidence income in family law cases. This article discusses the sources of income that are disclosed on a personal income tax return (Form 1040), and some ways the items can be evaluated to search for hidden income and hidden assets.
- Wages – The figures reported on the income tax return should be matched to the W-2. The W-2 and the pay stubs will provide additional information on the employers, pay rates, total pay, certain benefits, and taxes withheld. Additional analysis may include tracing bank deposits to ensure that all wages were used for the benefit of the family.
- Taxable Interest and Tax Exempt Interest – These items of income must be considered when calculating income available for support. They are also important because they can point to bank, investment, and brokerage accounts that may not have been specifically disclosed in the family law case.
You need your personal taxes done and they’re not that complex, so you think you’ll just run right over to H&R Block, Jackson Hewitt, Liberty Tax Service, or some other tax preparation franchise. It’s easy and they must be good or they wouldn’t have so many locations and be in business so long, right?
Wrong. The fact of the matter is that you’re taking a big risk if you have your taxes done at one of the large tax return sweatshops or a similar smaller service. These companies have a few major drawbacks that most consumers are unaware of:
The prices they charge are generally too high. Even the simplest of tax returns can cost you well over $100, and that type of fee is just too much. Add in some things like a rental property or an in-home business, and watch your tab for the tax return run up fast.
The name of the game at the tax return franchises is turning out as many tax returns as fast as they can, at the lowest possible cost. This means that most of the employees are inexperienced data entry clerks who really know next to nothing about the tax law. They couldn’t spot an opportunity or a problem with your tax situation if their life depended on it. Do you really want to risk having your taxes prepared by someone who took a day-long class to learn how to enter data into a computer program?
When the Internal Revenue Services suspects that a taxpayer has unreported income, the agents can use one of several methods to uncover that income. These methods can also be used to help calculate hidden income in a divorce or child support case. One such method used to determine unreported income is the bank deposits method, in which the forensic accountant analyzes bank deposits. In the video below, Tracy explains how this is done.
When the IRS believes a taxpayer has unreported income, they will use alternative methods to attempt to determine the true income. One of those methods is the Expenditures Method. Tracy Coenen explains the basic methodology in this video. Note that this method of calculating income can be used in a variety of cases that involve allegations of hidden income including divorce, money laundering, and income tax fraud.
Why should a taxpayer use the services of a forensic accountant when being audited or under criminal investigation? Tracy Coenen talks about the expertise a forensic accountant can bring to the case, specifically in evaluating the methods used by the IRS for determining income.
White collar government investigations almost always have one thing in common: They rely heavily on an analysis of financial information. This often includes going through banking documents with a fine tooth comb, and can also involve scrutinizing accounting records.
While the task of accumulating this data and examining it seems basic, there is much work involved, and expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against the company or individual. To properly defend such a case, it is necessary to have a financial investigator involved to help filter the data and the issues the government will raise.
Tracy Coenen talks on CNBC about the top five tax scams that consumers should be aware of.
Income tax audits are intimidating whether you are being audited personally or as a business owner. There is a right way and a wrong way to handle an audit by a state or federal taxing authority. It is easy to dig a hole for yourself, but awfully hard to get out of that hole.
Whether you attempt to handle an audit on your own, or opt to involve a professional who is experienced in these matters, there are some things you should know as you embark on your journey. I don’t ever suggest that a taxpayer submit to an audit alone. It is very helpful to have an experienced professional along for the ride. Not only can the accountant or attorney help you complete records requests, she or he can also act as a buffer between the taxpayer and the IRS.
The process of an audit is often one big negotiation. It is a give and take between both sides. Ultimately, both sides want the case closed, and the faster we can get to that point, the better. (Preferably with the least amount of pain for everyone involved.)
You are being audited.
These are some of the most dreaded words an individual or business will ever hear from a state or federal tax auditor. They invoke fear, panic, and sometimes anger.
Most of all, they create a need for documentation. Every number could be scrutinized. That means documentation must be produced to support the amount of each expense and the business purpose of the item.
Some of us are meticulous in our documentation, but if you are like most taxpayers, you have pockets of misplaced or destroyed data. Even worse, you may be in a situation where documentation was completely destroyed by a fire or flood. If you don’t have documentation, does that mean your deductions are automatically disallowed? Not necessarily.