If you plan to trade stocks, it helps to get an understanding of basic terms that are mentioned frequently on TV, radio,  and social media. There are three Major indices: 1.Dow Jones Industrial Average. 2. S&P 500. 3. Nasdaq Composite. 1. Dow Jones Industrial Average is the oldest index, dating back to 1896. It tracks…

YES, definitely! These are the best of times to invest in the stock market. If you are not trading stocks now, you are missing the longest bull run in history. It may not be too late. We may still have a year or two before the party is over. Returns have been awesome. The internet…

Last week’s sell off inspired me to write today’s article to caution you when stock markets dive. When stock prices drop, one’s first reaction is to sell. That’s the worst thing you can do. The best you can do is sit back and wait for the market to recover. If you sell when prices drop,…

1. DEALING in Cryptocurrencies People are not reporting transactions with Bitcoin, Ethereum, or Litecoin. The general public may not be aware that they are reportable. They may also not know how to report the purchase, sales, or exchange of digital currencies. This is something new. Reporting gets technical, even for tax pros. 2. Claiming Stock…

FIRST, you get a notice called a “contact letter” by mail – postal mail. The IRS does not reach out to taxpayers via email or phone; if that happens, you are probably being scammed. IRS will ask you to bring specific documents via Information Document Request (IDR). Here’s a list of what to do: • Respond…

THE IRS will tell you what records to bring to an audit. The requested documents varies based on your situation. They will need support for income that you report and deductions that you claim. This may include income records for wages, dividends, stock trades, and bank statements. This may include records to support deductions for…

WHEN an audit is completed, you will be notified of the Agency’s determination: 1. No change: IRS accepts your returns as filed. You will be asked to sign the examination report. That concludes your pain and suffering. About 11% of correspondent audits and 8% of field audits end with a no change verdict, a win for…

YES, it can be. Going to a tax preparer who increases your refunds with phantom deductions is dangerous. You may have to return that nice refund … and more, sometimes much more. A tax preparer who is incompetent can spell trouble for you. Grande problema. If the IRS audits a return prepared by an unethical…

YES, shrinking budget reduces your chance of getting grilled by the IRS. • The main reason for the decline: IRS budget and staff levels are down. • Tax collectors are blaming the massive drop off on budget cuts. • IRS staff shrunk by 20,000 over the past 8 years, despite increase in numbers of returns…

NO, merely renting out your house, condo, or apartment does not attract IRS audits. But yes, there are rental items that attract IRS scrutiny: • Deducting expenses that are disproportionately high compared to rent collected. • Deducting capital items that should be capitalized and depreciated. • Claiming to be real estate professional. Let’s discuss these…

BEING audited by the IRS is dreaded by most taxpayers. My clients constantly asked which method increase their chances of getting audited. Let’s compare two methods of filing your tax returns: • Old method of manually preparing and mailing your tax returns via post office. • Newer method of electronic software and efiling tax returns…

YES, definitely. Mistakes can get you audited by the IRS. Let’s discuss common mistakes that can get you into trouble. 1. Filing On Paper Paper-filed error rate is 21% compared to only 1% for e-filed tax returns. 2. Procrastination: Some people have a habit of waiting and waiting until April 15 to file…an extension. Rushing…

THE Internal Revenue Service currently audits less than 1% of tax returns annually, so your probability of attracting IRS audit is incredibly low. Taking deductions that are higher than average deductions nationwide increases your probability of getting audited. • Taking unrealistic itemized deductions raises red flags. • The IRS has a sense of what’s a fair…

IRS scores tax returns for audit. The higher the score, the more likelihood that you’ll be chosen for audit. 1. Scoring system: The IRS uses a Discriminant Function System (DIF) to determine returns that are most likely to generate additional revenue for the government. Scoring is secret and is known only to top brass at…

E-Filed Returns: • Electronic data are transmitted to a centralized Submission Processing Center. • Tax preparation software assigns a unique 14-digit Declaration Control Number to each return. • A unique Filing Location Code shown as the first two digits distinguishes returns as e-filed. • An Electronic Management System provides format data verification, data translation, and…

YES, it does. Losses from hobbies attract IRS audits. It’s cool to run a business that you enjoy, such as photography, dance studio, martial arts, dog-breeding, farming, and other leisurely activities. If you convert that stress-reducing pastime into a regular business, try to make some money; otherwise, you may attract an IRS audit, especially if…

SOME IRS forms attract audits. Merely filing them causes the Agency to look at your tax returns. Here are some of them. Form 1099: You may have had a side job that paid you more than $400 but you missed to report or did not receive because you moved. Failure to report 1099s activates IRS…

OUR tax laws give you choices of filing status to prepare your income tax returns. Which one is appropriate for a married person petitioning (or being petitioned by) your spouse? I’m a tax professional, not a lawyer, so let’s discuss this case from a tax standpoint. Case in point: I had a new tax client…

YES, you can be. It’s terrible, but it happens. In a landmark case, the Supreme Court held that a conviction for willfully filing a false tax return is a deportable offense under our immigration laws. It reached the same conclusion with respect to a conviction for aiding and abetting in the preparation of a false…

SOME undocumented workers use other people’s Social Security numbers (SSN). That creates a problem. Then they use another number to file their income tax returns – their own Individual Identification Numbers (TIN). Using two numbers creates another problem, actually two problems: 1. To the IRS system – Unmatched W-2s, 1099s and 1040 tax returns take…

U.S. taxpayers file millions of individual tax returns each year. Some of these tax returns contain W-2s with fake Social Security numbers. Some belong to people who get married and never report changing their names. Others merely submit erroneous tax forms. But a huge number of these forms are filed by employers for a group…

NO, they don’t; in fact, undocumented workers help shore up our Social Security system. You see, they pay millions, no, make that billions with a “b” to a system that they may not collect from. They pour an estimated $13 billion into the system but collect only $1 billion per year. Why? Some use fake…

AFFECTED Transactions A. Currency Transaction Report (CTR): You must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed with the Internal Revenue Service. B. Monetary Instrument Log (MIL): You must indicate cash purchases…

IF you are a US citizen (or dual citizen) residing outside the U.S. but do not report your foreign accounts, you may be subject to harsh penalties—penalties that are more severe than you expect, penalties that can even exceed balances in your accounts. It is therefore critical that you learn the new rules for FBAR…

IF you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing FinCEN Form 114, Report of…

IF you have offshore bank accounts, should you report the accounts to the U.S. government? Yes, if the aggregate balances exceed $10,000 at any time during the year. What if you had the accounts before you left for the U.S.? Yes, you should. There are reasons why our government wants to know: combat money laundering,…

Q. AM I required to report bank accounts in a foreign country? A. Yes, if you have more than $10,000 at any time outside the U.S. Q. Am I exempted if my accounts are in Euros, Chinese Yuan, Philippines pesos, or Mexican pesos? A. No, you are not exempt from reporting foreign accounts just because…

CRIMINAL Investigations can be initiated from information obtained from within the IRS when a Revenue Agent (auditor) or Revenue Officer (collection) detects possible fraud.  Information is also routinely received from the public as well as from ongoing investigations underway by other law enforcement agencies or by United States Attorney’s offices across the country. What should…

THE Internal Revenue Service (IRS) Criminal Investigation Division (CID) conducts investigations regarding violations of the Internal Revenue Code, the Bank Secrecy Act, and Money Laundering statutes. What are warning signs that you may have been referred to CID? 1. The agent starts asking about your life style and spending habits. 2. The agent asks about…