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The truth about common tax myths

| Nov 17, 2017 | Audits

Georgia residents may have firsthand experience with how complicated the federal tax code can be. Such confusion has led to the creation of generalizations or myths that some may have come to take for granted. While it is true that the IRS generally audits those who make more than $1 million per year, those who make under $25,000 and claim the earned income tax credit may be at risk for being audited.

In 2014, these individuals were twice as likely to be examined compared to other taxpayers. Even if a tax return is accepted, the IRS has three years to audit it. That number goes up to six years if a taxpayer failed to report 25 percent or more of his or her income for that year. Those who have cash earnings also may believe that they don’t have to report their income.

While there is less direct evidence that such income was generated in a given tax year, the IRS can still determine if earnings were not reported. This may be done by comparing self-employment earnings to others in similar professions, tallying up bank account statements or tracking internet activities. T-accounting also may be utilized, which is when a person’s income is compared to his or her expenses for a give year.

Those who are involved in a tax dispute with the IRS may wish to consult with an attorney in a timely manner. Allowing a tax notice to go unanswered may make the issue worse, and it could result in increased financial strife or other penalties. In some cases, a person may go to jail for unpaid income taxes. A lawyer may negotiate on a taxpayer’s behalf to resolve a tax case in a timely and favorable manner.

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