There's no reason to pay more tax than is legally required, but there’s also no reason to make yourself a target for an Internal Revenue Service audit or to get your return flagged by the IRS' computers, which match billions of documents each year. So consider what situations might make you more likely to invite government scrutiny at tax time.
Be super wealthy.
This may seem like a "duh" moment. But the IRS finally is increasing the percentage of really rich people it audits, on the reasonable theory there's a lot more potential to uncover big dollars owed. It even has special "wealth squads" looking at all their holdings.
Hide offshore accounts.
It's not illegal for U.S. taxpayers to have accounts in Switzerland or Hong Kong or some Caribbean island. It's only illegal not to declare them or their income. Ask the ex-clients (some now convicts) of Swiss banking giant UBS.
Be a tax protestor.
Let's be blunt. The IRS simply does not like it when you claim you owe no taxes because the income tax is illegal or only applies to weird income categories that don't apply to you. Such wacky theories landed actor Wesley Snipes in jail.
Claim huge charitable contributions.
Rules require complete before-you-file documentation of your gifts to nonprofits. The IRS' use of correspondence audits, in which it demands you mail in the documents backing various deductions, makes claims of substantial contributions a tempting target.
Omit some reported income.
IRS computers are very good at matching all the little pieces of paper you get reporting your income with what you put on your 1040. These papers include employer W-2s and independent contractor, brokerage and bank 1099s.
Take a big home-based business loss every year.
The IRS presumes that a Schedule C business losing money three years out of five is not necessarily all that legitimate. You might have to produce evidence of a profit motive.
Claim a loss on a hobby.
By definition, a hobby is not pursued for profit. But that doesn't stop some taxpayers from trying to write off expenses for their dog showing, comic book trading or other “business."
Use a sleazy tax preparer.
The IRS' efforts to regulate all paid tax preparers were just shot down by a federal judge. But that doesn’t stop its ongoing campaign to ferret out and shut down the sleazy ones. When the feds get onto a tax pro playing fast and loose, his or her clients become easy target
Write off big unreimbursed employee business expenses.
They're only deductible beyond 2% of adjusted gross income. The IRS may use a by-mail audit to ask for back-up paperwork, thinking you are trying to write off ordinary work clothes, commuting costs and other not-allowed items.
Take deductions in round numbers.
The world is an uneven place. So if you file a tax return taking deductions ending in lots of zeros, the IRS might think you don't have the required paper backup. You risk an audit by mail.
Make math errors.
IRS computers are programmed to check your math. Returns with errors can invite scrutiny that might trigger more IRS requests for back-up information.
Brag a lot.
Laws require the IRS to pay minimum rewards for tips in cases that result in big collections. The neighbor overhearing your expansive claims may become a government informant.
Anger an ex-business partner, employee or spouse.
They might blow the whistle on you too. And it's possible they won't do it just for the informant's bounty.
Make careless mistakes.
These can include not signing a return, leaving off your Social Security number or miswriting it. All are red flags.
Fail to file on time or at all.
The IRS has a special program that will generate a substitute return using W-2 and 1099 paperwork. Don't expect it to allow your deductions.
Con artists often use the names and logos of familiar organizations to get under your guard. So how do you tell what’s legit and what’s a scam? Here are some ways to spot a bogus email:
- It tells you to click on a link or download an attachment
- It urges you to take immediate action
- It asks you to “re-confirm” personal or financial information
Another sure sign an email is a scam? If you hover over the link in the email, it won’t show the official website of the supposed sender — in this case, the U.S. Postal Service website.
The Internal Revenue Service used its legislative authority to hire employees at salaries higher than those typically given to senior executives in the federal government, according to a new government report that found the practice appropriate, even though Congress has now stepped in to change it. The report, from the Treasury Inspector General for Tax Administration, noted that the IRS Restructuring and Reform Act of 1998 authorized the IRS to hire up to 40 individuals (at any one time) into positions it deemed to require extremely high-level expertise in an administrative, technical, or professional field that is critical to the IRS's success. The appointments were limited to four years. Employees hired under the Streamlined Critical Pay, or SCP, program received base salaries ranging from $130,000 to $227,300. The base pay for members of the Senior Executive Service in 2010-2013 ranged from $177,000 to $179,700.
The IRS used its streamlined critical pay authority to fill 168 critical pay positions between 1998 and 2013, when the program expired, TIGTA found. Over half were information technology positions and the remaining positions were distributed among the other nine IRS functions. Approximately 39 (38 percent) of the critical pay appointees were retained and held different appointments after their initial appointment or assigned project ended.
TIGTA's review found that the critical pay positions were adequately justified. The report said the need to recruit or retain exceptionally well-qualified individuals was demonstrated and that pay limitations were adhered to by the IRS. In November 2009, the Treasury Secretary's critical pay approval authority was delegated to the IRS commissioner, effectively eliminating an important oversight control written into the original authority.
TIGTA found that two critical pay appointees had previously worked for the IRS. After they separated from the IRS, they held private sector jobs for several years before returning to fill the critical pay positions to which they were appointed.
TIGTA did not make any recommendations in its report.
The report comes after a decision last month by IRS commissioner John Koskinen to award bonuses of around 1 percent of base salary to IRS employees. That decision came under sharp attack from some members of Congress.
On Thursday, Koskinen pointed to the results of the TIGTA report. “The IRS is pleased that the Inspector General’s review and report on the agency’s use of its Streamlined Critical Pay authority found that the IRS had ‘appropriately used its legislative authority’ and that the ‘critical pay positions were adequately justified; the need to recruit or retain exceptionally well-qualified individuals was demonstrated; and that pay limitations were adhered to,’” Koskinen said in a statement. “Over the past year, I have strongly urged the Congress to reinstate this critical program. Therefore, we are deeply disappointed that Congress has decided not to reauthorize this program, which was an important reform in the Internal Revenue Service Restructuring and Reform Act of 1998.
"The IRS has found that the Streamlined Critical Pay authority has been an enormously cost-effective and necessary tool in recruiting top-tier talent," Koskinen added. "Its renewal is essential to continuing IRS technology modernization progress and advances in other high-demand areas requiring people with specialized skill sets. This authority will allow the IRS to attract private-sector executives for Information Technology programs as well as other specialized functions requiring cutting edge skills and specialized expertise. The Streamlined Critical Pay program has been a huge success over the past decade, giving the IRS access to highly qualified people who have helped usher in a period of remarkable IT advances vital to running a modern tax system.
"I encourage the 114th Congress to reinstate Streamlined Critical Pay authority to ensure the tax system has the necessary level of talent required for efficient and effective tax administration," said Koskinen. "Without Streamlined Critical Pay authority, the IRS’s ability to attract top talent and deliver vital tax functions will be hampered during a period of rapid change both in technology as well as in tax administration overall.
Uncertainty over federal tax policies is frustrating for small businesses such as Al Talbot’s construction-supply firm in California.
Many Call on Congress to Make the $500,000 Expensing Limit Permanent
By RICARDO ALONSO-ZALDIVAR from www.ap.org
Many people covered under President Barack Obama's health care law will face higher premiums next year, the administration acknowledged Thursday. While the average increases are modest, it's more fodder for the nation's political battles over health care.
Officials stressed that millions of current HealthCare.gov customers can mitigate the financial hit if they're willing to shop around for another plan in a more competitive online marketplace. Subsidies will also help cushion the impact.
It's currently taking an average of 30 minutes for returning customers to update their coverage.
Premiums for the most popular type of plan are going up an average of 5 percent in 35 states where Washington is running the health insurance exchanges this year and will do so again in 2015, said a report from the Department of Health and Human Services.
Monthly premiums are one of the most important and politically sensitive yardsticks for Obama's health care law, which offers subsidized private insurance to people who don't have access to coverage through their jobs. Sharper premium hikes were common before it passed.
The modest average increases reported for 2015 mask bigger swings from state to state, and even within regions of a state. According to data released by the administration, some communities will still see double-digit hikes while others are seeing decreases. Most are somewhere in the middle.
"Prior to the Affordable Care Act taking place, we saw double-digit increases in health care costs in this country," said White House spokesman Josh Earnest. "Those were routine."
Many people who go back to the website "will now find that their costs are limited to only 5 percent on average," he said, "a much lower cost increase than was in place before the Affordable Care Act."
Even after Thursday's report, the bottom line remains blurry.
ast year, the administration released its analysis of premiums before the start of open enrollment season. This year's snapshot came more than two weeks after sign-ups had started and covered 13 fewer states. Among the missing states were two of the largest, California and New York.
Last year's report provided average premiums for three types of plans across 48 states — close to a national number. This year's report has no comparable statistic.
With both chambers of Congress under Republican control next year, the health care law will face even closer scrutiny from opponents still pursuing its repeal.
Nonetheless, industry experts said the picture appears positive for consumers and the administration.
"Benchmark premiums going into year two of the health law are very stable nationally, driven largely by strong competition among insurers," said Larry Levitt of the nonpartisan Kaiser Family Foundation. "How the law is playing out varies quite a bit across the country, with premiums increasing in some areas but actually going down in other places, which is almost unheard of."
Administration officials said that on the whole, the market for individual insurance has gotten better for consumers.
"In today's marketplace, issuers are competing for business," HHS Secretary Sylvia M. Burwell said in a statement. "Returning customers may find an even better deal if they shop and save."
The administration says about two-thirds of current customers can still find coverage comparable to what they have now for $100 a month or less if they shop. That estimate takes into account the tax credits that most consumers receive, which cover about three-fourths of their premiums on average.
Also, 91 percent of customers will have a choice of three or more insurers this year, with each company usually offering a range of plans. That's a notable improvement from last year, when 74 percent of customers had similar options.
The most popular coverage, known as the lowest cost silver plan, will go up 5 percent next year across the 35 states included in the administration's analysis. The second-lowest cost silver plan — the benchmark the government uses to set subsidy levels — will go up an average of 2 percent.
Tax credits are based on a person's income and the premium for the second-lowest cost silver plan in their community. The slow premium growth for the second-lowest cost silver plans is also good news for taxpayers who are subsidizing the program.
Open enrollment season for 2015 is now in its third week and runs through Feb. 15. The next big deadline for consumers is Dec. 15, the date by which new customers must sign up if they want their coverage to take effect on Jan. 1. For current customers, it's the deadline to make changes and updates that would take effect Jan. 1.
Current customers who do nothing will be automatically renewed in the plan they have now on Jan. 1. But with all the changes in premiums for 2015, administration officials and consumer advocates are urging people to come back and shop.
"For the vast majority of people, if they stay in the same plan, I think they'll see rate increases in the single digits to high single digits," said Andy Slavitt, a top HHS official overseeing technology and management issues.
The administration has set a goal of 9.1 million people enrolled in 2015, including most of the current 6.7 million customers.