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Los Angeles Tax Law Blog

Mistakes that could lead to an audit

Despite what may be believed in some circles, there is nothing inherently sinister about tax compliance audits. Indeed, being audited can be compared to a root canal or a colonoscopy, but it is supposed to be the federal government’s way of ensuring that everyone is playing by the rules and that individuals and businesses are truthfully reporting their income.

After all, there is a standard presumption that a tax return is completed and filed in good faith. When there are numbers suggesting that the presumption is being abused, the government has the right to investigate. Yes, there are random audits to ensure that taxpayers are following the rules, but some audits are triggered by abnormal activity.

Congress to modify IRS asset seizure laws

Tax reform appears poised to be the number one topic of debate this fall in Congress, but before the debates begin, the House of Representatives recently approved a bill that would curtail, in part, the IRS’ power to seize personal property.

The new measure stems from complaints over innocent taxpayers being ensnared in illegal activity probes. Small business owners who make a series of transactions under $10,000 may be mistakenly suspected of generating them to avoid Bank Secrecy Act regulations designed to report major transactions to the IRS. 

Key tips for National Preparedness Month

The recent natural disasters in Texas and Florida are unfortunate reminders of why we should take National Preparedness Month Seriously. Indeed, Southern California is not likely to be affected by a hurricane, but earthquakes and wildfires remain real dangers.

As part of National Preparedness Month, the IRS stands ready to help taxpayers in federally declared disaster areas to help with applicable issues. In the midst of being prepared, however, it is important to take the following steps to protect important documents. 

When you get the non-filing letter from the IRS

The IRS expects everyone to file an annual tax return, on Form 1040, 1040A or 1040EZ. If they have no record of receiving one of these forms from you, they will let you know with a Verification of Non-Filing Letter. This letter explains that they never received a filing from you and that you are on a list of non-filers.

The letter is generated not by a human IRS process but by database matches.

Can captive insurance get you in trouble with the IRS?

With all the advertising produced by major insurers such as Allstate, Progressive and State Farm, you probably will never hear such commercials about captive insurance policies. Captive insurance, as its name suggests, refers to insurance policies that are created and controlled wholly by its insureds.

There are a number of reasons why captive insurance policies exist. The first, of course, is to provide a resource to compensate losses. But the cost and tax benefits are enticing as well. A captive insurance company may cover a broader range of losses compared to a commercial insurance company, and a captive insurance owner may experience greater cash flow through this operation.  Essentially, for every dollar that is spent through captive insurance, a business may save 10 to 25 cents.

Can Mayweather-McGregor tickets be tax deductible?

Those who believe that boxing has simply become a circus-like spectacle may be proven right this weekend when UFC champion Conor McGregor steps into the ring to face former champion Floyd “Money” Mayweather, Jr. The exhibition is expected to be a pay-per-view bonanza for both fighters. Both are expected to take in nearly $100 million.

Given the interest in this spectacle, the resale market for tickets has exploded. Some fans are paying “Super Bowl” like prices to get the best seats. Usually tickets to sporting events may be written off as reasonable business expenses under IRS Publication 463, which calls for such expenses to be either “directly related” or “associated” with the active conduct of the business. 

The basics of accelerated accounting methods

Depreciation is one of the most common methods used by businesses to reduce their taxable income. However many do not understand the concept of accelerated depreciation. Additionally, they do not know how much money could be saved by using this method.

This post will provide a general overview of the concept.

How much in taxes will you owe from your next flip?

If you’re a fan of HGTV’s “Flip or Flop” series, you probably have considered flipping houses as an investment strategy or business. After all, the shows make it seem like renovating houses is a quick and lucrative process to make a great deal of money in a limited amount of time.

But just like these TV shows leave out many boring details, they may also ignore the tax implications that come with the sale of property. This post will highlight a couple of things flippers should consider. 

How to avoid reporting problems on your next return

With the 2018 tax season far away, it is easy to forget about what is necessary to process a proper return. It is akin to kids being on summer vacation and forgetting most of what they learned the previous year. But like children preparing for another school year, it is never too early to review tips for avoiding reporting problems.

This is especially important if you are realizing income from multiple sources, and taxes are not being taken out on a quarterly basis. The same applies if you may be losing money on investments or property. With that said, taxpayers should be wary of the following forms of income that should be reported. 

Did the IRS allow improper tax credits last year?

In a number of our posts we highlighted how private debt collectors would be dispatched to collect on dormant taxes as a result of the PATH legislation. It was created to generate and divert tax revenue for infrastructure projects. In addition to new collection efforts, the law would close a number of loopholes and limit tax credits that many taxpayers currently enjoy.

With many new pieces of legislation, it is not always implemented correctly when first released. A recent accountingtoday.com report described how the IRS did not properly implement PATH provisions that would reduce several refundable tax credits. Essentially, the IRS allowed improper payments under the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit when taxpayers filed amended returns for prior years or original returns for such years. 

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