Detecting Deception, what to look for....

Interesting article in Psychology today:

Here's what to look for if you suspect someone is untruthful, especially your tax or financial advisor.  Always trust your gut feeling has been my experience, but here's some things to look for:

• Liars tend to answer questions that were not asked.
• Liars tend to answer a question with a question.
• Liars tend not to make self-corrections to avoid the perception of being unsure about what they are saying.
• Liars tend to feign memory loss by using statements such as “I don’t remember” and “I don’t recall.”
• Liars tend to report what they did not do, rather than reporting what they actually did.
• Liars tend to justify their actions when no justification is necessary.
• Liars tend to not include emotional feelings in their account of events.
• Liars tend to report exact times and dates to prove they could not have committed the offense in question.
• Liars tend to ask for a question to be repeated or clarified.
• Liars tend to express emotions that are not genuine.
• Liars tend to use fewer words to describe events or activities.
• Liars tend to describe weakness and flaws in other people.
• Liars tend to include fewer details when describing events or activities.
• Liars tend to use passive language when describing events or activities.

On the flip side:

• Truthful people often refer to lessons learned from past experiences.
• Truthful people often include mistakes they made.
• Truthful people often include dialogue when describing events.
• Truthful people often report events and activities without exact times and dates.
• Truthful people often report events and activities without a coherent structure.
• Truthful people often report unusual or unexpected events that occurred.
• Truthful people often include sensory information, such as what they smelled when they report events or activities.

As a CPA representing clients, relationships are crucial and we will always represent your best interests and advise you accordingly, sometimes truth is not easy, but its necessary to keep our clients and their interests top of mind,

https://www.psychologytoday.com/us/blog/let-their-words-do-the-talking/201712/detecting-deception-is-possible-not-easy

Best wishes in all your endeavors,

Lighthouse

Taxpayer Bill of Rights - IRS

Happy New Year!

Posting the Taxpayer Bill of Rights to start the new year off right, 

1. The Right to Be Informed. Taxpayers have the right to know how to comply with tax laws. They are entitled to clear explanations of the laws and IRS procedures. Taxpayers have the right to know about IRS decisions affecting their accounts with clear explanations of the outcomes.
2. The Right to Quality Service. Taxpayers have the right to receive prompt, courteous and professional assistance when dealing with the IRS. They also have the right to speak with a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.
3. The Right to Pay No More Than the Correct Amount of Tax. Taxpayers must pay only the amount of tax legally due. This includes interest and penalties. The IRS must apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard. Taxpayers have the right to object to formal IRS actions or proposed actions. They can also provide justification with additional documentation. Taxpayers can expect the IRS to consider timely objections and documentation promptly and fairly. Taxpayers can expect a response when the IRS disagrees with the taxpayer’s position.
5. The Right to Appeal an IRS Decision in an Independent Forum. Taxpayers are entitled to a fair and impartial appeal of most IRS decisions. This includes appealing certain penalties. Taxpayers have the right to receive a written response regarding a decision from the IRS. Taxpayers generally have the right to take their case to court.
6. The Right to Finality. Taxpayers have the right to know the maximum amount of time allowed to challenge an IRS position. They also have the right to know the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS concludes an audit.
7. The Right to Privacy. Taxpayers have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be no more intrusive than necessary. During these proceedings, the IRS will respect all due process rights, including search and seizure protections. When applicable, the IRS will provide a collection due process hearing.
8. The Right to Confidentiality. Taxpayers have the right to expect that their tax information will remain confidential. The IRS will not disclose information unless authorized by the taxpayers or by law. Taxpayers should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully disclose return information.
9. The Right to Retain Representation. Taxpayers have the right to retain an authorized representative of their choice for representation during dealings with the IRS. When a taxpayer cannot afford representation, they may seek assistance from a Low Income Taxpayer Clinic.
10. The Right to a Fair and Just Tax System. Taxpayers have the right to expect fairness from the tax system. The IRS must consider all facts and circumstances that might affect any liabilities, the ability to pay or the ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service. TAS can help taxpayers who are experiencing financial difficulty. They can also help when the IRS has not resolved tax issues properly and timely through normal channels.

If you have IRS issues, please contact us to help you move on from tax debt and IRS lien & levy action.

Wishing you a happy and prosperous new year

Lighthouse

2016 IRS Databook, delinquent accounts, IRS collections

Despite efforts by the IRS to close delinquent cases, number of open IRS collection cases still growing, 13.4M to 14M open cases totaling $138 billion.

Talk with a tax professional today if you owe taxes and can't pay, there's options for installment agreements, partial payments, offers in compromise.  We can help you move on from tax debt and have a prosperous, less stressful New Year.

Happy Holidays from Lighthouse 

Link to irs.gov databook

https://www.irs.gov/pub/irs-soi/16databk.pdf

Small Business R&D Tax Credit for 2016

New Small Biz R&D Tax Credit for 2016, even if you’ve already filed!

The IRS gives some tips on how small businesses including S Corps (<$5M in Revenue & no gross receipts before 5 years prior) can deduct qualified Research & Development credits against the employer social security portion of payroll taxes.

An eligible small business can apply up to $250K of its research credit against its social security portion of its payroll liability with Forms 6765 (Credit for Increasing Researching Activities) with filing an amended return for 2016 (if you didn’t extend)

You’ll need Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities) to add when you file your Quarterly payroll taxes (Form 941), and apply the credit to your current payroll taxes.

You’ll have to file Form 6765 first, and you can take the credit on your next quarterly payroll, Form 941

Questions?.... let a tax professional know, we can help you navigate the credit.

https://www.irs.gov/uac/newsroom/for-small-business-startups-irs-explains-new-option-for-claiming-research-credit-option-still-available-for-those-that-already-filed

Tax Resolution, options to settle your tax debt

Tax Resolution Pathways....

If you are one of the millions of taxpayers that have a federal tax debt outstanding, here’s some helpful info on options you have and ways to get tax debt resolved and life moving forward...

Options for taxpayers to resolve tax debt:

Installment Agreement, A payment plan, generally monthly, that allows the taxpayer to pay back their tax, penalties, and interest, over time.

Offer in Compromise (OIC):  For taxpayers with minimal or no assets and minimal disposable income, the IRS may accept whatever monthly the taxpayer has to pay the taxes, penalties, and interest owed.  This option gets a lot of attention from major tax debt resolution firms, but in reality, very few qualify for the OIC.  Less than 1% of tax debt cases are resolved through the OIC,  The IRS has a formula to settle the debt depending on your assets, income, and expenses, only if you qualify, can you settle your tax debt for "pennies on the dollar."

Currently Not Collectible (CNC):  If a taxpayer has NO money, then this may be an option for a tax debtor.  Full financial disclosure is required, and the taxpayer has to be essentially broke, living paycheck to paycheck if they do have income.  This stops the collection enforcement from the IRS for typically a year or more before the IRS revisits your case and reassesses your ability to pay.

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The IRS has 10 years generally to collect tax debt aka. CSED (Collection Statute Expiration Date).  If the IRS fails to collect the tax debt within that time, the tax debt is considered expired and the taxpayer is not required to pay.

Some actions that can extend the CSED:

1.       Bankruptcy filing

2.       CDP (Collection Due Process) appeal filing

3.       OIC (Offer in Compromise) filing

4.       Taxpayer overseas for >6 months

Don't despair if you have tax debt, a tax professional can help you.  Please contact us to get your tax trouble behind you, we will represent you before the IRS and work with you on resolving your tax debt permanently.

Matt Smith, CPA                                  Lighthouse CPA

IRS Audit Red Flags, part I

Hello All,

Welcome to the Lighthouse Associates blog, hope this information is helpful…..

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One of a CPA’s priorities is keeping their clients off the IRS “naughty” list,

Wanted to pass along some good info on audit red flags from a great book from Martin Kaplan, What the IRS doesn’t want you to know….reaffirmed recently by Mayo (Will Farrell) from the critically acclaimed film Get Hard

Audit Red Flags, Part I

Millions of taxpayers live in fear of being on the IRS Audit radar, although there are no guarantees, there are some traits of returns IRS Auditors look for, red flags that may end up getting you on their hot seat.

The IRS considers any taxpayer with more opportunity to hide income or inflate deductible expenses, as a higher risk of tax fudging, or even fraud.

Easy targets for the IRS to identify

• ·         The self employed
• ·         People who work out of a home office
• ·         Independent contractors
• ·         Cash intensive businesses
• ·         Non-filers
• ·         Tax cheaters – omission of income
• ·         Tax delinquents

By definition of sole proprietor is the necessity to file the Schedule C with a 1040 form.  While Schedule C requires you to define the type of business, occupation, it’s also a wonderful way to deduct business expenses dollar for dollar to business income.  You have every opportunity to under-report your income and also to convert personal expenses to business

How to protect yourself or your clients?

A heavy concentration of expense items is a valuable indicator for the IRS, ratios are a critical factor.  If you try to write off $25,000 in travel & entertainment out of a $50,000 income from a business, you’re going to get IRS attention.  A cash based business is also another favorite target of IRS enforcement.

If you do get that dreaded letter, an auditor will typically ask for Form 4700 (IRS Examination)

1. A description of the business, number of years operating
2. Number of employees, bookkeepers name
3. Amount of cash in the business at the start and end of year
4. Name and address of your bank
5. Method of accounting, cash, accrual
6. Outstanding loans due to or from the owners of the business
7. Business expense verification
8. Copy of prior year tax return

Home office deduction: 

You can take a home office deduction if your principal place of business is where you perform administrative or management activities, provided there is no other fixed location.  That home office must be used exclusively for business on a regular basis. 

Form 8829 is an IRS weapon for getting a grip on taxpayers taking the home office deduction.  Form 8829 can single out your tax return for scrutiny. 

How to defend the home office deduction:

First, make sure you maintain a separate telephone number for business purposes only.  Make sure your business correspondence is sent to you home office address rather than a corporate or other office somewhere else.  Also, make sure you understand what benefits the home office deduction offers and how to make the best use of them.  You can deduct depreciation on the business portion of your principal residence, depreciation on equipment, furniture, and the business portion of your transportation expenses.

 Need to know:

• ·         Percent of home space used as an office
• ·         Number of square feet
• ·         Depreciation of the home or place of business
• ·         Depreciation of equipment and furniture.

Summary

You can take the home office deduction if you can show the office is used exclusively for business purposes regularly and there is no other fixed office location.  Be prepared to back up your deduction with data; your mortgage statement, property tax statements, any depreciation schedules, etc.  Remember, its an audit red flag, and if its a large deduction in proportion to your income, you will likely get IRS attention, be sure you're able to back up your claim.

Thank you,

Lighthouse Associates, Certified Public Accountants

Sources:

Martin S Kaplan, CPA, What the IRS doesn’t want you to know, 9th Edition, Wiley & Sons, 2004

Mayo Get Hard “Home office deduction scene"