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Common reasons a tax audit may occur

Individual taxpayers in Georgia and around the country are at a relatively low risk of being audited by the IRS. Overall, fewer than 1 percent of federal income tax returns are scrutinized further by the government. However, a person's exact audit risk may depend on several factors such as his or her income, deductions taken and forms included in a return. For instance, those who had an adjusted gross income between $500,000 and $999,999 were audited at a rate of 3.62 percent in 2016.

In some cases, deductions are made in two different places on a tax return or are not accounted for properly. For instance, a person may take a deduction on a rental property when it should be capitalized over several years instead. As a general rule, the IRS knows how much a person gives to charity or spends on medical bills in a given year. If deductions are much higher than average, it may result in an audit.

What to know about 2018 IRS tax returns

The IRS says that it will process 155 million tax returns during the 2018 income tax season. However, not all Georgia residents necessarily need to file a tax return. This will depend on one's earned income and personal exemption. Those who do have to file an income tax return for 2018 will have until April 17 to do so. This is because April 15 and April 16 are a Sunday and a holiday.

Some taxpayers will have their refunds postponed until at least Feb. 15. However, this is only a hard rule for those who claim the Earned Income Tax Credit (EITC). This rule also applies to those who are claiming the Additional Child Tax Credit (ACTC). In some cases, taxpayers who don't claim these credits will have their refunds delayed for other reasons. It's important to note that the taxpayers impacted by the delay won't have their refunds until Feb. 27 at the earliest this year.

Overseas financial institutions must disclose U.S. accounts

The Internal Revenue Service continues to make changes to its amnesty programs for U.S. taxpayers who hold offshore accounts.

A program released in 2012 slapped owners of undisclosed foreign accounts with massive fines. However, this is a new day, and guidance issued by the IRS in 2015 provides the least onerous penalties yet.

Reporting bitcoin income on taxes

Georgians who have invested in bitcoin should be aware that they must report any income that they made from selling or trading cryptocurrency on their income tax returns. Some people have the mistaken idea that digital currency is beyond the reach of the Internal Revenue Service, but it is not.

The IRS wants people to report bitcoin income just like they have to report all other types of earned income. Therefore, people who made money selling digital currency in 2017 must declare it. The Internal Revenue Service views digital currency as a type of capital gain. If a taxpayer sells it after holding it for longer than a year, they will pay the long-term capital gains rate of around 20 percent. If they held it for a shorter period before selling it, they will pay the normal income tax rate.

IRS clarifies 2018 deadline for Roth IRA conversion do-overs

The tax overhaul passed by Congress in December of 2017 changed little relating to long-term retirement matters. However, one change could have a major impact on Georgia residents hoping to retire soon. Specifically, the tax overhaul eliminates so-called do-overs for Roth IRA conversions. Under the prior law, an individual could convert a traditional IRA to a Roth IRA and then avoid a large tax bill by converting it back to a traditional IRA by October of the following year.

The change to Roth IRAs left has some questions in the minds of taxpayers who made the move to a Roth IRA in 2017. The confusion stemmed from whether a taxpayer had until the end of 2017 to recharacterize or if they would have until October 15, 2015, to do so.

Uncertainty about payroll withholding emerges with new tax law

The changes to federal income taxes passed late in 2017 have left some people in Georgia wondering what to withhold from their paychecks. The Internal Revenue Service has issued new withholding tables, but the agency has not yet had a chance to provide employers with new W-4 forms. Although employers may apply information from their workers' existing W-4 forms, these forms do not match the new tax system. People might end up with miscalculated deductions from their paychecks.

A director of a large payroll processing company said that withholding errors could increase. He advised people with complex tax filings to examine their withholding closely. The IRS plans to build an online tool where people can enter their income and receive information about their tax obligations. Because the tax changes removed personal exemptions, people might need to alter their current rate of withholding.

Filing federal returns electronically

Georgia taxpayers have to file their federal income tax returns on time or incur possible penalties, according to the Internal Revenue Code Section 6651. For returns that are mailed, this means making sure that they are mailed on time. The timely filing rule also applies to electronically filed returns. However, there are reasons that an e-return may be sent back.

Treasury Regulation Section 301.7502-1(d) affirms that the mailbox rule is applicable to returns that are filed electronically and that those returns have to be transmitted from an authorized electronic filing vendor and received by the IRS in the correct form. The Internal Revenue Manual also asserts that electronically filed returns that are rejected by the IRS but have an electronic postmark that indicates they were transmitted timely will be considered timely if they are re-transmitted or mailed no later than 10 days after a notification of rejection has been issued.

Abuse victims may seek relief from the IRS

Georgia residents who are the victims of financial abuse at the hands of their partners may be given relief by the IRS. For instance, an individual might apply for innocent spouse relief. If granted, that person will not be held liable for taxes owed on a joint return. This may be true if there was a balance because the other spouse deliberately withheld income.

If one spouse has a past due federal balance, the other spouse may be denied a refund that he or she would otherwise be entitled to. In such a scenario, the person who was expecting a refund could be considered an injured spouse. That person may be allowed to get a refund in their name. It is also important to note that a married person is still allowed to file an independent return, and an individual is not required to sign a joint tax return against his or her will.

Tax season brings cybersecurity threats to personal information

Individuals and business owners in Georgia naturally take communications from the Internal Revenue Service seriously, but the agency warns that cyber criminals often take advantage of people's willingness to comply with tax requests. Criminals will attempt to access personal and financial information or load malicious software onto computers.

To help businesses avoid security breaches, the IRS has issued warnings about scams meant to access employees' W-2 forms that contain information that could enable identity theft. Thieves will direct emails that appear legitimate to human resources departments and request W-2 forms. Staff members with access and control of employee personal information must always confirm requests for information.

Understanding the IRS fresh start program

Many individuals owe back taxes, which can weigh on their finances. Thankfully, there are tax relief programs in place to assist these people.

A popular option is the IRS Fresh Start program. If you are considering this program, there are a few things you should understand about it.

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