Beauty, it's often said, is in the eye of the beholder. But that isn't really true of tax deductions. No matter how necessary a certain expense may seem to a given taxpayer, that doesn't mean the IRS will agree.
Labor Day is just around the corner, signaling the unofficial end of summer and the traditional start of the academic year. At colleges and universities around California, students are moving into apartments and dormitories, purchasing supplies at the bookstore and preparing for the first day of classes, if they haven't already begun.
It is no secret that the current job market still remains difficult for many professions. Recent jobs reports show that the economy is adding jobs, but not at a level job applicants want to see. Some California residents may have found their way back into the labor market, but are searching for a better or more permanent position.
The legendary complexity of the Tax Code is common knowledge among Californians. While the IRS has taken steps to simplify the tax return process, arcane and difficult rules can come into play for many taxpayers, and mistakes made on returns can lead to contact from the IRS. In addition, the differences between California's tax laws and the federal government's can be enough to confound even the savviest taxpayers.
The deadline to file taxes is now less than two months away. This may be a source of anxiety and hand-wringing for some Orange County residents, who dislike gathering the necessary documentation and worry about the possibility of an audit. Others may look forward to filing their returns because they eagerly expect a plump refund check. The IRS, however, has issued a cautionary message to people in both groups.
The IRS creates and maintains a list of helpful tax tips that can benefit California taxpayers as they begin to prepare their 2011 returns. Failure to heed these tips may result in paying more tax than is required or may risk an audit by the IRS. An experienced California tax attorney can ensure that your taxes are in order and defend you in the event of an audit.
The year is not over and it is not too late to make some shrewd moves to save on your yearly tax bill. In our last post we discussed the importance of proper tax planning for high income individuals and the fact that some deductions may trigger an IRS audit. We also discussed three tax saving tips that the IRS recently issued including donating to charity, installing green-energy appliances, and making changes to an investment portfolio.
Orange County residents with high incomes are more likely to itemize their tax deductions and to be targeted by an IRS audit. The IRS is more likely to scrutinize the deductions that a high-income earner takes and the failure to provide supporting documentation for a deduction can get a taxpayer into serious legal trouble.
In our last post we discussed the importance of hiring an experienced California tax litigation attorney when the IRS refuses to reasonably handle the negotiations surrounding an unfavorable audit. We also discussed a recent tax court case in which California taxpayers challenged the IRS' characterization of their rental losses as "passive activity losses" that were subject to certain limitations.
When the IRS fails to reasonably negotiate with a taxpayer, an experienced California tax litigation attorney should be prepared to take a client's case to court. Depending on the issues involved in a tax case, a case will be directed to the United States Tax Court, United States District Court, or the United States Court of Claims. Although going to court is not the first option for many taxpayers, sometimes going to tax court is the only way to aggressively challenge an unfavorable audit.