When you got married, you and your spouse pledged your love for each other and promised to stand together through good times and bad, sickness and health. But what happens if your spouse turns out to be a tax cheat, and you signed a joint tax return without realizing it. Can you be held responsible?
Finding out that your spouse has dragged you into their tax evasion is a twofold problem. There’s the emotional aspect that surrounds your relationship and your marriage, and the more pragmatic issue of whether their actions make you subject to fines or penalties, as well as whether you’ll have to pay for their taxes. Though we have no advice for you on the former, there’s good news on the latter. You’re probably eligible for what is known as Innocent Spouse Relief.
Have you ever wondered how long the IRS has to question and assess additional tax on your tax returns? For most taxpayers who reported all their income, the IRS has three years from the date of filing the returns to examine them. This period is termed the statute of limitations. But wait – as in all things taxes, it is not that clean cut. Here are some complications:
December 15th, 2021 marked the last deposit date for the child tax credit payment expanded under the American Rescue Plan (ARP). Though many had hoped the program would be continued, political leaders are struggling to find a way forward that makes the majority of Congress happy, and as a result, many families have been left waiting and wondering what will come next.
The IRS has long been a bogeyman for the American public, and there’s good reason for that. They have the unique ability to do what few other creditors can: taking your home and selling it out from under you. Still, despite its remarkable powers, fear has created mythologies around the agency. People both overestimate and underestimate the IRS’ abilities.
Unfortunately, not being well versed in IRS procedures makes dealing with them that much more frustrating and fear-inducing, and there are very few taxpayers who are up to the task. Between the complexities involved in all aspects of tax audits and the overwhelming stress and emotions that arise when confronted by the agency, even highly capable people find themselves feeling defenseless and intimidated. It is this specific combination that leads to simple acceptance of what the IRS says and being afraid to push back and protect themselves. As wrong as it may seem, this reaction is exactly what the IRS counts on to keep people compliant with tax law. According to a former Commissioner of Internal Revenue, the agency relies on this fear to ensure that people report their income honestly and file and pay their taxes correctly and on time.
There is a real need for people to either educate themselves about the audit process or to seek professional help from someone familiar with the IRS. Ignorance is not an excuse in the face of an audit, and mistakes can lead to additional taxes, penalties, and even seizure of your property if you do not have other assets with which to pay.
The Internal Revenue Service has released a midyear report to Congress that details a significant backlog of tax returns dating back to the end of tax filing season, and many of those returns have yet to be processed. While backlogs are not unusual, this year’s is far greater than in previous years.
That’s bad news for those taxpayers who are eagerly waiting for tax refunds. For tax year 2020, roughly 70 percent of the individual returns that have already been processed have resulted in refunds being paid. Those refunds have averaged $2,827.00, but there were still more than 35 million returns for last year that had not yet been addressed by mid-May. An independent advocacy group within the IRS says that at the same point in time the previous year, there were a third the number of backlogged returns as now.
Tax time can be one of the most hated times of the year. Just preparing the forms is enough to be an irritant, and if you owe the government money there’s a good chance that you’re downright annoyed. But neither of those things compare to the feeling that accompanies an envelope bearing an IRS return address, alerting you to the fact that your taxes are about to be audited.
The truth is that audits are relatively rare in the United States. As much as people fear them, the IRS reports that between 2010 and 2018 only 0.6% of individual tax returns resulted in an audit. That may make you feel better, but statistically speaking that still means that more than 250,000 taxpayers had to go through the process. In many cases the audit process could have been avoided had the taxpayers simply known what we’re about to spell out for you – that there are specific triggers that send up IRS red flags and frequently lead to an audit process.
To help you determine whether the letter you received rom the IRS is a scam or something you need to address, consider the following tips and information contained in this week’s article. As always, feel free to contact us with any questions.
Anyone who collects tips must include those tips in their taxable income. This requirement is not limited to waiters and waitresses; it applies to anyone who collects tips, including taxicab, Uber, Lyft, and similar drivers; beauticians; porters; concierges; and delivery people.
Tips are amounts freely given by a customer to a person providing a service. They are generally given as cash but also include tips made on a credit or debit card or as part of a tip-sharing arrangement. Tips can also be in the form of non-traditional gifts such as tickets to events, wine, and other items of value. If you receive $20 or more in tips in any month, you should report all of your tips to your employer.
Generally speaking, tax return mistakes are a lot more common than you probably realize. Taxes are naturally complicated, and the paperwork required to file them properly is often convoluted. This is especially true if you’re filing your taxes yourself — and all of this is in reference to a fairly normal year as far as the IRS is concerned.
The 2018 tax year, however, certainly does not qualify as a “normal year.”
With the passage of the Tax Cuts and Jobs Act, even seasoned financial professionals are having a hard time digesting all of the changes that they and their clients are now dealing with. All of this is to say that if you’ve just discovered that you’ve made a BIG mistake on your tax return this year, the first thing you should do is stop and take a deep breath. It happens. It’s understandable. There ARE steps that you can take to correct the situation quickly — you just have to keep a few key things in mind.