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Minneapolis Tax Law Blog

IRS called to increase small business audits

The Treasury Inspector General for Tax Administration (TIGTA) recently reported that small businesses and merchants who make use of platforms like Uber or Etsy are not properly reporting their income. This accusation is supported by discrepancies that were found between numbers filed on Form 1099-K and individual tax returns. These discrepancies are likely to trigger audits to dig into the issue.

What were the discrepancies? As noted, the issue involves income reported on Form 1099-K and individual tax returns. Form 1099-K, the Payment Card and Third Party Network Transactions Form, is used to report payment from card transactions like credit cards, debit cards and stored-value cards like gift cards.

Audit basics: Know these three types

The Internal Revenue Service (IRS) conducts audits for a variety of reasons. Some audits the result of discrepancies in tax filings, others are allegedly random. Whatever the reason for the audit, those who are the subject of scrutiny by the IRS likely have one thing in common: the stress of the event.

One way to ease the stress is to know what types of methods the agency uses when conducting an audit. Determining which type you are dealing with can help you prepare for the process. The three basic types to be aware of include:

Three ways to stop a tax levy on your salary

Getting hit with a tax levy may seem like something that could never happen to you. It seems unfair that the government can simply take your money directly from your paycheck, yet they do. The Internal Revenue Service (IRS) will employ this means of tax collection for overdue payments.

When with the IRS move forward with a levy? The IRS generally sends a Notice and Demand for Payment, or a tax bill, before moving forward with a levy. The IRS will send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing if the bill is not paid. This is sent 30 days prior to the levy going into effect. 

Hefty IRS debt? Consider making an offer the IRS can’t refuse.

Tax obligations do not just go away. Fortunately, those who struggle with tax debt have options. One specific option to address a hefty bill with the Internal Revenue Service (IRS) is referred to as an offer in compromise.

An offer in compromise (OIC) is an agreement that is presented by the taxpayer to the IRS. Essentially, the taxpayer provides evidence to show that there is no way he or she could ever fully repay the debt. Instead, the taxpayer offers to pay a more manageable amount. The deal is supposed to be a win/win: the IRS gets some of the money while the taxpayer can have the debt settled. 

Why is the distinction between hobby and business important?

It may begin as a hobby. Perhaps a woodworking experiment or brewing gift set began as a fun pastime. But this new pastime has taken off. Perhaps you are spending more and more time on this hobby and you begin to wonder, could this be considered a business?

Why would I want to consider my hobby a business? There is one potential advantage to shifting a hobby into the world of business. Businesses can claim deductions: One of the benefits of having a business is the ability to claim losses for tax purposes. 

Two ways to help determine if a nexus is present

Entrepreneurs are always looking for ways to expand their businesses. Some attempts are successful and yield results. Others are what are best referred to as learning opportunities. In some cases, the two can overlap. One example involves expanding a business into another state.

This expansion can happen in any number of ways. Perhaps the business is now selling the product in a different state or looking for workers from that area. The expansion could result in a larger customer base, but there may be a catch.

IRS to crack down on unreported employment tax

The United States Treasury Inspector General for Tax Administration (TIGTA) recently released a report finding “billions of dollars of employment taxes are uncollected.” As a result, the Internal Revenue Service (IRS) is focusing in on businesses that have allegedly unreported and underreported their employment taxes. 

4 FAQs about moving, starting a new job and tax consequences

Getting a new job is an exciting prospect. For some, this requires moving to a new area and potentially selling an old home. These are big life changes that often come with a number of questions, some of the more common follow.

Are there any tax benefits to moving for work? In some cases, the answer is yes. Moving expenses may qualify for a tax deduction. There are certain criteria that must be met in order for the move to qualify for a deduction. 

Win big at the casino in MN? Don’t forget about Uncle Sam’s cut.

Winning big at a casino is cause to celebrate. But, before celebrations get too out of hand, be sure to keep in mind that a chunk of those winnings will go to Uncle Sam. A failure to pay these taxes can result in an audit, which could lead to penalties and fees that may exceed the winnings. 

Entrepreneurs can use this tip to maximize their bottom line

Entrepreneurs are go getters. These business men and women have that extra grit that’s needed not just to get ahead in the business world, but to forge their own path. As such, these canny business experts are always looking for new ways to maximize their bottom line. One news source that is dedicated to this group, Entrepreneur, recently published a piece with some advice on how to mitigate costs and maximize a business’ bottom line.

One of the top tips: Self-employed entrepreneurs should avoid irking the Internal Revenue Service (IRS). 

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