Celebrating Independence and Financial Freedom
As we gather with family and friends to celebrate the 4th of July, let's take a moment to reflect on the profound significance of this day. It was on July 4th, 1776, that our nation's founders boldly declared their independence, setting in motion a revolution that would forever change the course of history.?
The Declaration of Independence, a document that has inspired countless generations, proclaimed the self-evident truth that all men are created equal, endowed with unalienable rights to life, liberty, and the pursuit of happiness. These words, penned with unwavering conviction, ignited a flame of freedom that continues to burn brightly in the hearts of Americans today.?
As we commemorate this momentous occasion, let us remember the sacrifices made by those who fought for our independence. Their courage and determination paved the way for the liberties we cherish, and it is our duty to honor their legacy by upholding the values upon which our nation was founded.?Just as our forefathers fought for independence from tyranny, we too must strive for financial freedom. Taxes, while necessary for the functioning of our society, can sometimes feel like an oppressive burden. But fear not, for there are legal strategies to help alleviate this burden and keep more of your hard-earned money in your pocket.?
One such strategy is to take advantage of tax credits. Unlike deductions, which merely reduce your taxable income, credits directly reduce the amount of tax you owe, dollar for dollar. Be sure to claim all the credits you're eligible for, such as Business Credits, the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit.
Another way to reduce your tax bill is to contribute to a retirement account like a 401(k) or IRA. Not only will you be saving for your golden years, but your contributions will also lower your taxable income for the current year. It's a win-win situation!?
If you find yourself facing tax debt or IRS issues, don't despair. There are options available to help you get back on track, such as payment plans, offers in compromise, and even penalty abatement. Remember, the IRS is willing to work with taxpayers who demonstrate a genuine effort to resolve their tax problems.?
As you celebrate this Independence Day with loved ones, take a moment to appreciate the freedoms we enjoy as Americans. And just as our nation fought for its independence, let us strive for financial independence by taking advantage of the legal tax strategies at our disposal.?
May the spirit of freedom and prosperity reign supreme in our lives, just as it does in the land we call home.?
Happy 4th of July!?
Randy Martin CPA EA
Business Owners Beware: The Costly Consequences of Failing to Pay Taxes
As a business owner, managing your tax obligations is crucial for maintaining compliance and avoiding severe penalties. A recent case in El Paso, Texas serves as a stark reminder of the serious consequences that can result from failing to properly handle employment taxes.
The Importance of Trust Fund Taxes
Trust fund taxes are the portion of payroll taxes that employers withhold from their employees’ wages. These include federal income tax, Social Security tax, and Medicare tax. As an employer, you have a legal responsibility to collect these taxes and remit them to the IRS on behalf of your employees.
A Cautionary Tale
Recently, an El Paso business owner was arrested on charges related to failing to account for and pay trust fund taxes. The indictment alleges that over a period of nearly five years, the owner failed to properly handle these taxes for his employees. This case highlights the severe consequences that can result from neglecting this crucial responsibility.
Potential Penalties
The penalties for failing to pay employment taxes can be severe:
Best Practices for Business Owners
To avoid these serious consequences, follow these best practices:
IRS Criminal Investigation: A Powerful Enforcement Tool
The IRS Criminal Investigation (CI) division is the agency’s law enforcement arm, responsible for investigating financial crimes, including employment tax fraud. With a federal conviction rate of over 90%, CI takes these cases very seriously.
As a business owner, properly managing your employment tax obligations is not just a legal requirement—it’s a crucial aspect of running a successful and ethical business. The potential consequences of failing to do so, as illustrated by this recent case, are simply too severe to ignore. Stay informed, stay compliant, and don’t hesitate to seek professional help if you’re unsure about your tax obligations.
Remember, when it comes to employment taxes, it’s always better to be proactive than to face the potentially devastating consequences of non-compliance.
Q&A: How the IRS Disappears Tax Refunds on Unfiled Tax Returns
Question
Randy, I have a client who has not filed his taxes for 10 years, and now the IRS is after his returns. The problem is not that he owes money but that he has overpaid by at least $100,000, and the IRS won’t refund his money. Are you aware of any ideas to open up those returns for a refund?
Answer
The refund statute of limitations is straightforward and consists of two prongs. To claim a refund for federal taxes paid, you must file the refund claim within the later of:
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Since your client did not file any returns, the three-year prong does not apply. Instead, you will need to claim the refund under the two-year prong, which means the refund cannot exceed the amount paid in the two-year period immediately preceding the claim filing.
Let’s assume in your case that tax returns for the years 2014 to 2023 are unfiled, and you are filing these returns in July 2024. You can seek refunds for 2022 and 2023 because those years fall within the last two years (the two years when the client had withholding or made estimated payments).
However, your client can say goodbye to the refunds for the years 2014-2021.
Insight
On March 25, 2024, the IRS announced that 940,000 people have a total of more than $1 billion in unclaimed tax refunds for the tax year 2020. For most of them, the statute of limitations has now expired, and the money belongs to the U.S. Treasury.
Takeaways
Remember
The IRS has strict rules regarding the refund statute of limitations. If your client hasn't filed tax returns for many years, they may miss out on significant refunds. It is crucial to file tax returns promptly to avoid losing hard-earned money to the U.S. Treasury.
Beware of Bad Tax Advice on TikTok: A Cautionary Tale
In the age of social media, platforms like TikTok have become popular sources of information on a wide range of topics, including tax advice. However, the IRS has raised significant concerns about the proliferation of misleading and incorrect tax information on these platforms. This blog post delves into the dangers of following tax advice from TikTok and other social media sites, highlighting the need for caution and the importance of consulting qualified tax professionals.
The Dilemma Facing the IRS
The IRS is in a challenging position when it comes to combating bad tax advice on TikTok. Federal government employees, including those at the IRS, are prohibited from accessing TikTok on government devices due to security concerns. This restriction makes it difficult for the IRS to monitor and counteract the spread of misinformation on the platform.
Erin Collins, the National Taxpayer Advocate, highlighted this issue at the AICPA & CIMA ENGAGE conference in Las Vegas. She pointed out that the IRS cannot directly engage with TikTok users to provide accurate information, leaving a gap in the agency’s ability to counteract false claims. “We’re not supposed to even see what’s in there,” Collins said, emphasizing the challenge of reaching an audience that relies on social media for tax advice.
The Spread of Misinformation
The IRS has included “bad tax information on social media” in its 2024 Dirty Dozen list of tax scams. This list warns taxpayers about various schemes that encourage the misuse of tax documents and the filing of fraudulent claims. For example, some TikTok videos suggest misusing Form W-2, Wage and Tax Statement, or Form 8944, Preparer e-file Hardship Waiver Request, to obtain larger refunds or avoid taxes altogether.
In addition to the Dirty Dozen list, the IRS issued a consumer alert in May 2024 about bad social media advice on specific tax credits, such as the fuel tax credit, the sick and family leave credit, and household employment taxes. While these credits are legitimate, they apply only to specialized situations, and misinformation can lead taxpayers to make ineligible claims, resulting in audits and penalties.
Common Myths and Misleading Advice
Several common myths and pieces of misleading advice have been circulating on TikTok, including:
1. Starting a Side Hustle to Write Off Expenses: While it’s true that starting a business can allow for certain deductions, the business must be legitimate, and accurate bookkeeping is essential. The IRS differentiates between a real business and a hobby, and improper claims can lead to penalties.
2. Writing Off Personal Expenses as Business Expenses: Some TikTok influencers suggest that personal expenses, such as buying a car or a pet, can be written off as business expenses. However, the IRS requires that these expenses be used exclusively for business purposes, and personal use can disqualify the deduction.
3. Claiming Taxes Are Voluntary: This dangerous myth has led some individuals to believe they can avoid paying taxes altogether. In reality, taxes are mandatory, and failure to pay can result in severe legal consequences, including imprisonment.
The Impact of Misinformation
The spread of bad tax advice on TikTok has real-world consequences. Tax professionals report an increase in clients who have made poor financial decisions based on social media advice. For instance, some small business owners have amended their payroll tax returns to claim the Employee Retention Credit (ERC) based on misleading TikTok videos, only to face audits and penalties when their claims were found to be ineligible.
In Australia, a billion-dollar tax fraud scheme was propagated through TikTok, where influencers encouraged people to claim fraudulent refunds on goods and services taxes. This led to significant legal repercussions for many individuals who followed the advice.
The Importance of Professional Advice
Given the complexities of the tax code and the potential for severe penalties, it is crucial to seek advice from qualified tax professionals rather than relying on social media. Tax professionals can provide personalized guidance based on your specific situation, ensuring compliance with tax laws and maximizing legitimate deductions.
Conclusion
While TikTok and other social media platforms can offer entertaining and sometimes informative content, they are not reliable sources for tax advice. The IRS and tax professionals urge taxpayers to exercise caution and verify any information obtained from social media with a qualified tax advisor. Remember, if something sounds too good to be true, it probably is. Always consult a certified public accountant or tax professional to ensure you are making informed and legal tax decisions.
For more information on avoiding tax scams and obtaining accurate tax advice, visit IRS.gov or consult with a trusted tax professional.