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Tag: IRS

What Is Innocent Spouse Relief and How It Can Help You

September 4, 2024 / / 0 Comments

If you’ve ever found yourself knee-deep in tax trouble because of something your spouse or ex-spouse did, you’re not alone. The IRS can seem persistent when it comes to collecting taxes, but there’s a lesser-known way to ease the burden if you’re unfairly caught in the crossfire: innocent spouse relief. 

This IRS provision might be the lifeline you didn’t know you needed. So, what is innocent spouse relief, and how do you know if you qualify? We’ll break everything down in this month’s blog.

What Is Innocent Spouse Relief?

Innocent spouse relief lets you avoid being responsible for tax debt caused by your spouse’s errors on a joint tax return. It allows you to separate yourself from their tax liabilities and start fresh. There are three types of innocent spouse relief available under Internal Revenue Code 6015. These are known as innocent spouse relief, separation of liability, and equitable relief.

Do You Qualify for Innocent Spouse Relief?

Now, before you breathe a sigh of relief, it’s important to know that not everyone qualifies. The IRS doesn’t hand this out easily. There are specific criteria you must meet to be considered “innocent” in the eyes of the taxman:

  • Joint Return Filed: You must have filed a joint return with your spouse, which led to the tax debt.
  • Erroneous Items: The understatement of tax must be due to “erroneous items” on the return. This could be anything from unreported income to improperly claimed deductions or credits. Essentially, your spouse fudged the numbers, and now the IRS is looking to you for the difference.
  • Lack of Knowledge: You must prove that when you signed the joint return, you didn’t know and had no reason to know about the error. The IRS wants to see that a reasonable person in your shoes wouldn’t have caught the mistake either.
  • Equity: Lastly, it has to be clear that it would be unfair to hold you responsible for the tax debt. This is where the IRS weighs all the facts, like your financial situation and the role you played (or didn’t play) in the error.

How to Apply for Innocent Spouse Relief

Applying for innocent spouse relief isn’t a walk in the park, but it’s worth it if you qualify. Here’s the rundown:

  • File Form 8857: This is the official request form for innocent spouse relief. Be sure to include all relevant information and documentation that supports your claim.
  • Time is of the Essence: You need to file for relief no later than two years after the IRS first tried to collect the tax debt from you. However, certain situations might allow for more flexibility.
  • Get Professional Help: Taxes are complicated, and dealing with the IRS can be nerve-wracking. Consider consulting with a tax professional who can guide you through the process and help strengthen your case.

When Relief is Granted

If the IRS grants you innocent spouse relief, it’s like a weight lifted off your shoulders. You won’t be held responsible for your spouse’s tax debt, and the IRS will stop trying to collect from you. But remember, this relief only applies to the specific tax year or years in question. It’s not a get-out-of-jail-free card for any future tax issues.

Conclusion

If you believe you may qualify for innocent spouse relief, we’re here to guide you through the process. Our team is committed to helping you navigate the complexities of tax law, ensuring you receive the support and relief you deserve. Call us today at (956) 997-0067 or visit our website mruiz-cpa.com to learn more about how we can help you achieve a fresh start.

Strategic Tax Planning Tips

April 29, 2020 / / 0 Comments
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Planning for the upcoming tax season? Perhaps you’re already thinking about next years? If you want the best outcome for your tax return, it’s a good idea to do a little bit of research before you click ‘submit’ to the IRS. From looking over previous tax documents to claiming medical and education expenses, there are many ways you can make a difference when it comes to filing. Follow along in our blog for strategic tax planning tips.

Check Last Year’s Documents

Before starting on your current taxes, review the previous year to check for errors. If you have documents like W-2 and 1099s in your filing cabinet, go through them and make sure there are no inaccuracies. Identifying any problems early on can give you more time to resolve any issues with the company who sent the document.

Organize Investment Earnings

According to WrapManager, “the IRS requires that you report your interest and dividend categories separately.” With your investment accounts, it’s important to keep all statements and records pertaining to your earnings. Even if yearly statements have an overall review included, details of monthly or quarterly statements may be needed for your filing too.

Write Down Medical or Education Expenses

Having proof of medical records will allow you to make tax deductions, but only if you have the proper documentation. Claims that are commonly made can be anything from travel expenses to medical appointments, treatments that aren’t covered by insurance, and much more. Likewise, college-related expenses can also be deducted. Costs for tuition, books, and boarding are just a few examples. WrapManager advises to “keep track of these records throughout the year, either in a paper folder or an electronic file.”

Conclusion

Talk with a tax professional at MARIELA RUIZ, CPA, PLLC today. We work with individuals and businesses that need assistance with tax planning and much more. For a full list of our financial services, visit our website here. You can also reach us at (956) 997-0067 to speak directly to one of our advisors. Contact us today!

How to Minimize Your Chance of an Audit

March 2, 2020 / / 0 Comments

Tax season is upon us. Whether you intend on getting money back from the government or paying in, every citizen is at risk of being audited if the IRS is tipped off by discrepancies or other suspect information on your tax return. Read the following tips to learn how to avoid an audit this tax season.

Inaccurate Donated Amounts

The IRS encourages individuals to donate clothes, food and even used cars to charities. It does this by offering a deduction in return for a donation. The problem is that it is up to the individual owner to determine the value of the item. As a general rule, the IRS likes to see individuals value the items they donate anywhere between 1% and 30% of the original price. Unfortunately, many taxpayers ignore this guideline or simply aren’t aware of it.

There are several other ways that the taxpayer can ensure that they are valuing donated goods at an equitable price.  One of the ways is hiring an appraiser to write a letter, naming their opinion on the worth of the item.

Simple and Avoidable Math Errors

Many returns are selected for audit due to basic mathematical mistakes. When filling out your tax return (or double-checking your accountant’s work) make sure that the numbers add up. Also, make sure that the total dollar value of and/or losses are properly calculated. Even the smallest errors can alarm the IRS.

Failure to Sign

A surprisingly large number of people simply forget to sign their tax returns. Don’t be a part of this group. Failure to sign the return will almost guarantee additional examination because the IRS will wonder what else you might have forgotten to include in your records.

Under-Reported Income

It is vitally important that you report all income that you received throughout the year from work and/or from the sale of an asset. If you fail to report income and get caught, you will be forced to pay back-taxes plus penalties. While it may be tempting to not report some income, it’s better to be safe than sorry.

Home Office Deductions

Be careful with home office deductions. Deductions that are too large in proportion to your income can raise a huge red flag. For example, if you earned money as an accountant working from home, extravagant home-office related deductions will raise the ire of the IRS.  Deduct only items that were used in the course of your business.

Conclusion

When it’s time to file your annual taxes, make sure you cover all your bases to avoid scrutiny from the government. While there is less than a 1% chance you will be chosen for an audit, there’s no reason to not take every precaution just to be safe. For exemplary accounting services and tax services you can trust, contact the experts at Mariela Ruiz, CPA, PLLC.

3 Types of Small Business Audits

July 25, 2019 / / 0 Comments

All business audits share things in common, but do you know what they entail? The auditor, whether someone within your business or an external auditor, will do a thorough evaluation of your accounting books and financial statements. They usually check an entire year’s worth of financial data, including income and expenses. If you’re a small business owner, or maybe just curious about the auditing process, keep reading to learn about the different audits for businesses.

Internal Audit

An internal audit is a self-audit that’s scheduled and conducted by a representative of your own company. Many businesses do an internal audit once a year to ensure the accuracy of their books and financial statements. An internal audit is for your own purposes, and to check for errors or other issues.

Larger companies usually have audit departments, but a smaller business might employ just one or two people to conduct audits. Internal auditors don’t just check business finances; they also check company policies, procedures, and processes to check compliance with internal guidance and federal, state, and local laws.

External Audit

An external audit, also known as an independent audit, is an audit conducted by someone outside the organization. This is called an independent audit because the auditor has no loyalty or responsibility to the business that could create a conflict of interest. In their report, they’ll have to provide an opinion as to whether your company passed the audit. An auditor might take one of the following stances in a business audit:

  • Clean opinion – The business’s books and financial statements accurately represent the company’s financial position.
  • Qualified opinion – The auditor disagrees with parts of the company’s financial records, but the audit was too limited in scope or access to come to a definitive conclusion.
  • Adverse opinion – The auditor found that the business financial records materially misrepresent the company’s financial position.
  • Disclaimer of opinion – In this type of report, the auditor doesn’t give any opinion on certain financial records.

IRS Audit

An IRS audit occurs when the IRS finds potential errors in your tax return. Usually, the IRS schedules audits for tax returns that were filed in the last three years. A few factors can trigger an IRS audit. For example, if you claim losses for multiple years in a row or report high income levels, you may be subject to an IRS audit. 

Conclusion

As you’ve read above, small businesses go through the audit process to check on financial records and other important documentation. Whether it’s an internal or external audit, it’s best to let a professional do the job. At MARIELA RUIZ, CPA, PLLC, we have the audit services you need to keep your business in check. Contact our team today!

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