Don't panic if the IRS sends you a letter

There are many reasons why the Internal Revenue Service could be contacting you. Some contacts involve very minor corrections; some are for serious changes that could involve a lot of money. Sometimes the IRS is correct in what they are seeking; sometimes they are wrong.

An IRS notice can be something as simple as a correction to a social security number or as significant as a billing for more taxes, plus interest and penalties.

So, what should you do if you get a letter from the IRS?

Here is a list of do's and don'ts concerning contact from the IRS.

* Don’t panic, but don't ignore the notice; the problem will not go away.

* Act promptly. A quick response to the IRS may eliminate further, more complicated correspondence.

* Follow the instructions in the IRS notice. Any correspondence you have with the IRS must make reference to the specific notice you are addressing.

* If you agree with the IRS adjustment, you do not need to do anything unless a payment is due.

* If the IRS is requesting more money or a significant amount of new information, be sure to contact your tax preparer immediately.

* Always provide your tax preparer with a copy of any IRS notice, regardless of how minor it appears to be.

* Keep a copy of all the IRS correspondence with your tax return copy for the year in question.

If you would like more information or assistance with any tax matter, please contact our office. We are here to help you.

IRS eases reporting requirement for small businesses

The “Affordable Care Act of 2010” requires employers to report the cost of coverage under an employer-sponsored group health plan on the employee's W-2 for 2012.

The IRS is easing this requirement for small companies. Employers issuing fewer than 250 W-2s will not need to include the cost of health care on W-2s for 2012. For these employers, the 2012 reporting is optional. And such reporting will not apply for future years until the IRS publishes guidance giving at least six months of advance notice of any change in the filing requirement.

IRS plans random small business audits

The IRS plans to conduct random audits of 2,500 returns from 2010 filed by corporations with less than $250,000 in assets. The results will be used to update the IRS formulas for selecting returns for audit.

The IRS is also trying to improve tax compliance among sole proprietors. According to a Treasury report, sole proprietors accounted for 20% of the $345 billion tax gap calculated for 2001.

Simplify your life: Organize your tax records

Did you spend hours pulling together your tax records
in preparation for filing your 2007 tax return? It
doesn't have to be that way. Avoid the problem next
year by taking a few simple steps now.

FIRST, DECIDE WHAT RECORDS...you need to keep for the current year. Generally speaking, you'll need records of income items and deductible expenses. Use your 2007 tax return as a guide.

* YOU'LL ALSO NEED TO KEEP SOME ITEMS for longer
periods. For example, you may need purchase records
for your house and other investments years later to
calculate your capital gains.

* SET UP A FILING PLACE for each category. Use folders
or plastic pouches for paper records, such as
charitable receipts, property tax payments, and
mortgage reports.

* IF YOU MANAGE YOUR BANKING AND FINANCES ONLINE,

open up a series of folders on your hard drive. Save
copies of electronic statements or transaction
receipts in the relevant folder. Remember to make
regular data backups.

* THEN STAY CURRENT with your records as you go through
the year. It's easier to spend a few minutes each
month than to have to spend hours reconstructing
everything at the end of twelve months.

* AT THE END OF EACH MONTH, highlight income and deduction items in your check register. Use one color for charitable contributions, another for work
expenses, and so on. You can do this whether you keep your register on paper or on a computer. Make sure any associated receipts are filed away correctly.

* AT YEAR-END, you should know exactly what falls into
each category and where the records are.

Remember, the better your recordkeeping, the better your
chances of maximizing tax breaks. If you have questions
about the records you need to keep, give us a call.