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How to Keep Good Tax Records

how to keep good tax records

Tax time can be a stressful period for individuals and businesses alike. However, maintaining accurate and organized tax records throughout the year can make the process much smoother and alleviate unnecessary headaches. Whether you’re a freelancer, small business owner, or an individual taxpayer, this guide will provide you with valuable tips on how to keep good tax records, ensuring compliance, minimizing errors, and maximizing deductions. 

Organize Your Documents 

The best way to get started with keeping good tax records is to create a system to help you stay organized. To some, this may look like a filing system, either physical or digital. However, if you do go with a physical cabinet, you should still keep digital backup files. You can start organizing by labeling all documents by category, from income to expenses to deductions and credits. Then you may want to take it a step further and include subdivisions of each category. For example, you can break these down by month, expense type, or project. 

Utilize Technology 

Some of us are old school and that’s okay. However, working technology into your system can make things much more efficient. For example, if you’re looking for a specific file, doing a quick search on your computer will be a whole lot easier than digging through paper files. You may also want to consider using accounting software to track expenses and income. These tools can streamline the record-keeping process significantly, especially if you are running a business. 

Separate Business and Personal Records 

Speaking of business, always remember to keep your personal and business income and expenses completely separate from each other. This includes documentation and receipts.  

Keep Records of All Relevant Information 

It’s better to keep more records than you need just to be on the safe side. At the very least, you should keep the following for a minimum of three years: 

  • Income records, including bank statements, W-2s, 1099s, receipts from rental income, etc. If you file jointly with your spouse, you’ll also need their records. 
  • Expense documents, like receipts, invoices, checks, etc. Be sure these are categorized so it’s easier to claim certain deductions at tax time. 
  • Investment records, such as purchase and sale details, dividend payments, capital gains and losses, etc.  
  • Real estate records, including purchase agreements, mortgage interest statements, property tax records and more.  

Track Your Deductions and Credits 

During tax time, you’ll want to maximize your refund and savings by taking advantage of tax deductions and credits. Be sure to only claim the credits and deductions you qualify for and can substantiate with proof. For example, if you plan to deduct contributions made to charity, you should keep receipts and acknowledgements for donations you make. These will allow you to calculate your deductions. If you have education-related expenses, records of tuition payments, student loan interest, or materials can help prove your eligibility for education tax credits.  

Get Tax Help 

Keeping good tax records is essential for legal compliance, minimizing errors, maximizing deductions, making the audit process smoother, and gaining valuable financial insights. By investing time and effort in maintaining accurate and organized records, you can navigate tax season with confidence, minimize tax liabilities, and ensure smooth interactions with the IRS. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

When Does the IRS Pursue Criminal Charges?

when does the irs pursue criminal charges

Tax evasion and tax fraud are federal crimes that involve the willful attempt to either evade the assessment or the payment of taxes. But at what point does the IRS pursue criminal charges for these actions? What consequences are included in the criminal charges? How does one prevent these charges from being brought upon them? Here’s what you need to know about how and when the IRS pursues criminal charges against a taxpayer. 

What causes the IRS to consider pursuing criminal charges? 

The IRS typically does not pursue criminal charges unless you exhibit a pattern of intentionally breaking tax laws. This can include non-filing, filing fraudulent returns, falsifying information on your return, not paying taxes, and more. The IRS statute of limitations could trigger charges to be filed. Currently, the IRS has six years from the return filing date to pursue criminal charges that related to failing to file and underreporting income. Finally, if you are ever audited, do not attempt to falsify records or omit information. This is a sure way to be implicated in a tax crime.  

If the IRS decides to open a case against you, they will refer it to the Department of Justice for prosecution. In order for the IRS to be successful in convicting someone for tax evasion, they must prove without reasonable doubt that the accused taxpayer (or nonpayer) acted in a deliberate and willful manner to avoid paying their taxes. 

What consequences are included in the criminal charges? 

While these charges are not as common as others, the penalties are some of the harshest and can have life-altering consequences. Being guilty of tax fraud can result in heavy fines, interest, penalties, and even jail time. The average jail sentence for tax evasion can vary between three to five years depending on the severity of the case. In addition, you can be fined up to $100,000, or up to $500,000 for corporations. If you are found guilty of filing false tax returns, you can be fined up to $100,000 and up to three years in prison. Even misdemeanors, like failing to file, have harsh consequences, including up to $25,000 for each year of non-filing, and up to one year in jail.  

On the more extreme side, willfully hiding offshore bank accounts can result in up to $500,000 in fees and up to ten years in jail. Even if the action was not willful it will result in penalties.  

How do I prevent IRS criminal charges? 

The answer is simple: always remain tax compliant. Avoid committing tax evasion or tax fraud, and always file and pay your taxes. If you’re unable to pay, contact the IRS immediately to see what options you have. If you find yourself stuck in a tax dispute with the IRS, consider hiring an attorney to fix the issue while it’s at the civil level to avoid the charge becoming criminal.  

Remember, you are guilty even if you are only helping someone else evade their taxes, according to Section 7201 of the U.S. Internal Revenue Code. In any case, working with the IRS can help avoid criminal charges being filed against you. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Can I Have a Passport If I Owe Back Taxes?

can i have a passport if i owe back taxes

A passport is an essential travel document that allows individuals to explore new horizons, visit foreign lands, and experience diverse cultures. However, the privilege of holding a passport comes with certain responsibilities, one of which is fulfilling your financial obligations to the government. In this blog article, we will explore the question of whether you can obtain or renew a passport if you owe back taxes.  

Understanding Passports and Tax Obligations
Most people are quite shocked to learn that back taxes can affect your ability to obtain or renew a passport. The IRS’s control over this privilege is just another method they use to encourage taxpayers to remain compliant. If the IRS deems your tax debt “seriously delinquent,” they have the authority to notify the State Department, who can then revoke your passport, or deny your passport application or renewal. This action will not come as a surprise. If the IRS plans to contact the State Department about your back taxes, they will let you know with IRS Notice CP508C. The Department of State will also notify you in writing of their plans to revoke your passport or deny your passport application. 

What is considered “seriously delinquent?” 

According to the IRS, any tax debt that totals more than $55,000, including interest and penalties, is considered seriously delinquent. By this point, an individual likely has been levied and a notice of federal tax lien has been filed.  

How can I get this action reversed? 

Like many other consequences of not paying your taxes, the fastest and easiest way to reverse this action is to pay your tax debt. However, even paying your debt down so it falls below the “seriously delinquent” threshold can help resolve the issue. For those who cannot afford to pay, there are other options available to them including: 

  • Being approved for an installment agreement with the IRS 
  • Being approved for an offer in compromise 
  • Request innocent spouse relief 
  • Request a collection due process hearing 
  • Settle the debt with the U.S. Department of Justice 

On the other hand, there are some scenarios in which the seriously delinquent status can be removed. These include: 

  • Filing for bankruptcy 
  • Being a victim of tax identity theft 
  • Entering currently not collectible status 
  • Being impacted by a federally declared disaster area 
  • Requesting an installment agreement 
  • Submitting an offer in compromise 
  • Having an IRS-accepted adjustment that can pay off the full debt 

If you manage to fall into one of the above scenarios, it typically takes the IRS 30 days to reverse their action and notify the Department of State. In any case, it is crucial to take proactive steps to resolve the matter. Seek assistance from tax professionals, explore repayment options, and communicate with the relevant government agencies to find a suitable solution. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a Free Consultation 

What is Currently Not Collectible Status?

what is currently not collectible status

When taxpayers find themselves unable to pay their tax liabilities due to dire financial circumstances, the IRS offers a lifeline known as Currently Not Collectible (CNC) status. This status temporarily suspends debt collection efforts by the IRS, providing individuals with breathing room to get their finances under control. In this article, we will explore what CNC status entails, who may qualify for it, and how it can provide much-needed financial relief. 

What is Currently Not Collectible (CNC) status? 

Currently Not Collectible (CNC) status is a designation provided by the IRS to taxpayers who demonstrate that they are unable to pay their tax debt due to severe financial hardship. When a taxpayer’s account is classified as CNC, the IRS temporarily halts its collection activities, including liens, levies, and wage garnishments. However, the IRS will continue to assess interest and penalties during this time. They will also seize any tax refunds you receive and apply them to your tax balance. While collections typically stop, the IRS will still continue to send you tax bills as they are legally required to. 

Who qualifies for CNC status? 

As mentioned, CNC status is for taxpayers who cannot afford to pay their taxes. In general, taxpayers will need to meet general qualifications to be considered for CNC status. These include: 

  • Income under certain threshold 
  • Unemployed with no other income 
  • Little or no disposable income after basic expenses 
  • Living expenses meet IRS guidelines 
  • All income comes from Social Security, government welfare, or unemployment 

How do I apply for CNC status with the IRS? 

Taxpayers who can show proof of financial hardship may qualify for CNC status. To be considered, the IRS may require you to be current on any tax returns. You will need to submit IRS Form 433-F, Collection Information Statement, IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or IRS Form 433-B, Collection Information Statement for Businesses. These forms collect information about your current financial situation, including your account balances, real estate values, credit card debt, employment information, living expenses, and more.  

The IRS will use the information provided to confirm your inability to fulfill your tax obligations. They may request additional information and documentation to support your claims. You should keep in mind that you need to continue to file your taxes each year that you are under CNC status, even if you cannot afford to pay your taxes. You should also continue to make estimated tax payments and federal tax deposits if you are required to.  

What happens after the IRS reviews my case? 

If the IRS determines that you are unable to pay your taxes, you will be granted CNC status. This means that the IRS will temporarily pause all collections. It’s important to understand that CNC status is not a permanent get out jail free card, nor will it stop penalties and interest or federal tax liens. It is meant to relieve financial pressure until your financial situation improves. That said, the IRS will review your financials every year to see if you can afford to pay your tax bill. If your financial situation improves, they will likely remove your account from CNC status and begin to collect again.  

Should I apply for CNC status? 

CNC status allows individuals to stabilize their finances, meet essential living expenses, and work towards resolving their tax debt. It is important to consult with a tax professional or seek guidance from the IRS to understand the eligibility criteria and application process for CNC status. Remember, while CNC status offers temporary relief, it does not eliminate your tax debt entirely, and individuals should actively seek long-term solutions to their financial challenges. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a Free Consultation