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3 Stories to Start Your Week: February 7, 2022

Here’s Why Your Tax Return May Be Flagged By the IRS

 

Although some say that the chances of an audit are slim, there are still factors that should be taken into consideration to avoid your return being flagged by the IRS. During 2020, roughly 0.29% of individual tax returns were flagged.

The most common discrepancies noted by the IRS include excessive write-offs compared to income, unreported earnings, and unreported refundable credits. However, it should be noted that additional funding for the IRS is included in Biden’s Build Back Better Budget, meaning if this passes before the filing deadline there will be more crackdowns on those who submit incorrect information.

Some people tend to gamble an audit this time of year, which means they will put whatever information they want on their return because they know the chances of getting caught are slim. This is not in your best interest because currently, the IRS has a three-year statute of limitations, with that time being extended in some cases. In other select instances, there is no time limit on how long the agency can pursue fraudulent filers.

The best way to avoid a potential audit this year is to give your accountant and the IRS all of the correct information. Submitting information as accurately as possible will ensure that taxpayers will not receive penalties this filing season.

PayPal Taxes 2022: How Much Will Businesses Have to Report to the IRS?

 

Self-employed individuals and others that get paid with Apps such as PayPal and Venmo should be expecting changes coming from the IRS. When The American Rescue Plan was signed into law last year, it included specific regulations targeting tax compliance on electronic payment apps. The regulations required apps such as PayPal, CashApp, Venmo, among others to report any transaction of $600 or more for goods or services from a third party.

This is part of an IRS effort to eradicate tax evasion around the Country. Users that receive payments through any sort of Cash Application will need to fill out form 1099-K, issued by the IRS. The new $600 reporting regulation is only required for business accounts, meaning personal accounts will not be affected. Some apps such as PayPal are already adjusting to the new rule, as they are now separating personal and family transactions from business payments.

If you are an independent contractor or anyone else that may receive business payments through these apps, there are a few things you can do to best produce a correct amount to submit to the IRS. One of these things is taking advantage of the features within certain apps such as if the app allows you to label your business transactions, you should do so accurately to avoid raising any red flags with the IRS. Also, keep a personal log of all of the business payments you make or receive on the app, and bookmark the ones that are over that $600 threshold.

Global Tax Plan Will Not be Implemented This Year

 

After several years of intense negotiation between 137 countries, the historic Global Tax Deal has officially been signed. Although the signing finally happened almost nine years after it was proposed, the hard part is its implementation is yet to come.

Experts say that our international tax system is in desperate need of reform and that a more stable system is needed. Some nations do not agree with this however, the United States is one of the main nations that opposes. This is ironic because the United States was one of the main instigators of this deal, but domestic legislation in the United States could essentially stop this deal from coming to fruition.

Part of this global deal includes the global minimum tax rate, which will be one of the easier implementations of the deals because it does not require any change in tax treaties. The biggest overhaul will be getting the multinational economies on board. Some corporations believe that they should not be taxed in the countries they make their sales in, and should only be taxed where they have a presence.

There is still a lot of work that needs to be done to fully complete this deal, and although tariffs and tax wars are to be avoided, it is unlikely that this deal will be initiated without some disagreement. We can expect the full terms of this deal to be disclosed at the beginning of 2023.

For more Information, Give us a call at 516-541-6549, visit our website for more news updates, and don’t forget—have a great week!

 
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