Let’s be frank here and confront the reality. Most of us, at least once in our lives, have faced tex-related problems. The United States is among those countries that have stringent taxation policies and laws, which is why many people cannot understand or make sense of the complex procedures involved in filing tax returns, leading to tax problems. When you are faced with such a situation, even Andy Dufresne might not be able to fix your tax problems.

Every year millions of tax payers are faced with several tax related issues. But there is no need to fret over it as in this blog we have identified some of the most common tax problems faced by Americans with their solutions, assisting you to fix your tax problems.

If you need help fixing your tax problems, call us at 407-502-2400, or email us at [email protected].

Origins of Taxation

The early form of taxation originated in the Ancient Egypt in 3000 BCE. People all over the kingdom were required to pay tithe to the Pharaoh of the Kingdom, while those unable to pay were forced to render labor services to the Pharaoh. In fact the word ‘labor’ in Ancient Egyptian language (i.e. Coptic) is synonym for taxes. King Darius 1 in 500 BCE also introduced a tax system in the Persian Empire. Later, many verses appeared in the Holy Scriptures that forced people to give certain part of their share to the state, which will then spend it on the welfare of the people. With the passage of time there were various complex tax systems and policies that were introduced, still in service today. Now tax is not only imposed on individuals but also on businesses. There are various types of taxes in place around the world and the field of taxation has become a professional subject that many individuals choose to study and master. Most of these lawyers are also employed by big multinational businesses to help them in their tax planning.

Criticism on Taxation Policies

Implementation of taxes has long been criticized by many scholars and learned-men around the world, according to whom imposing tax on individuals is itself an injustice. Most countries do not spend the taxes collected from individuals on the welfare of the people, but rather in military and other sectors that do not have any impact on the well being of the citizens. Most analysts have pointed out that businesses should be the main chunk for collecting taxes and it is a bad idea to collect taxes from individuals because it reduces their disposable income to a great extent. Most developed countries have ridiculously high income and business taxes, which is why incorporating a company in a tax free zone has become popular nowadays.

Result of Stringent Tax Policies

No matter how hard a government tries, there will always remain loop holes in its policies and rules. It’s not that we are challenging all the governments around the globe; instead it’s a fact that was proved by Kurt Gödel in his famous Theorems of Incompleteness. Shrewd businessmen have found a way out to escape from such obscene tax laws. Such strict tax laws propel businesses to form offshore corporate entities in a tax free jurisdiction in order to avoid paying huge sums of money to government authorities as taxes. Forming an offshore company is legal but forming it to hide money originated from illegal sources is a crime. Today, most of the aspiring entrepreneurs look for these offshore tax havens like British Virgin Island, The Bahamas, Ras Al Khaimah etc. to be able to do business in a tax free fiscal paradise.

Most Common Types of Tax Problems that Individuals and Businesses Face and How to Fix Those Problems

Tax problems can be pretty stressful for you. There are many different and diverse problems that taxpayers in the United States face every year. List of some common tax problems that can be faced by a business or an individual are listed in this blog. Most often these tax problems can cost a lot to small businesses and individuals as they do not have the expertise to fix such taxation problems.

If you need help fixing your tax problems, call us at 407-502-2400, or email us at [email protected].

Elimination of Tax Breaks

There was a time when you can claim a tax break, but unfortunately, not anymore. Under current tax laws, an individual or married couple cannot enjoy tax deductions if their income (or joint income in the case of a married couple) exceeds a certain threshold level. According to the present tax regime, if your adjusted gross income amounts to $380,750 then you will not be allowed to avail any deductions whatsoever. For a married couple this threshold level for joint income is set at $432,400. Under these tax laws you lose the claim of up to 80% of deductions on your home mortgage interest, charitable contributions, state income and real estate taxes, if your adjusted gross income exceeds the threshold level.

In order to avoid such a situation we recommend you to be prudent and diligent when calculating your adjusted gross income. An erroneous calculation will lead to an overstated gross income which will devour you of the tax benefits that you otherwise could have availed.

The Headache of Additional Income

Did you make any capital gains on your investments this year or do you have a part time job from which you are drawing some additional income? Well, that’s really great but we’re sorry to tell you that you need to go through a tedious process of filing some additional forms with the IRS regarding your additional income. In order to fix this tax problem for you, we have provided a pathway through which you can tackle this problem. Form 1099 DIV and Form 1099-INT have to be filed with the IRS. In these forms you have to disclose all your additional income that you draw in a particular tax year. Most of the individuals don’t even know about these forms which is why they are dragged into hot water by the IRS.

Charity can Backfire

It’s great that we have a thousand points of lights for the needy and homeless. Americans donate millions in charity to approved institutions in the United States every year, but you cannot just walk away after giving charity if you want to avail tax deductions on that amount. Having a receipt (as a proof) with you at the time of filing of tax is necessary otherwise you will not be allowed any write offs. In order to be eligible for this charity deduction, you should have donated an amount of $250 or more to approved charity institutions. If you have contributed by giving hard cash to a charitable institution, then a receipt or acknowledgement is necessary to hand in while filing your taxes.

A Rollover Drama

This problem of rollover is faced by most employees who get retired. If you retired this year, this means that you can rollover your retirement account to the next year. While this account is tax free, you will still get a 1099-R showing the tax distributions of your retirement account. Don’t fall into this trap; be absolutely confident of the fact that you are not required to pay tax on your retirement account.

The solution for this tax problem is that you should add the figure of 1099-R on line 15a in your 1040 form. Then on line 15b or 16b (if it was your retirement distribution) write the taxable amount, which in this case is zero. Also write rollover in front of the taxable amount. Failure to miss this step will result in an IRS inquiry.

Change your Status

This is one of the most classic mistakes that most of the tax payers make when filing taxes. Most single parents who live with their non adult children file for taxes under a single tax payer status, which means that they are taxed on a higher rate. This tax rate can be changed to a significant extent if you file the tax returns under head of household (HOH) status.

The head of house hold requires you to be living alone without your spouse for at least half a year and you pay more than half of the costs of your non adult child then you qualify for filing of tax returns under the head of household status. Apart from this, if your parents live with you and are dependent upon you or live in a different house but more than half of the cost of their living is paid by you, even then you will qualify for filing taxes as thehead of household.

Saving a Buck can Cost You a Fortune

This may seem plain vanilla, but this is the most common tax error that most people make. You would probably be thinking what’s the big deal here? I can revise it, but my dear friends, unfortunately any revisions of tax returns by you will bring you under the red flag of the IRS. This is why 60% Americans do not file their tax returns themselves. They pay a professional for filing their taxes. It may cost you, but it will ensure that you do not get into any trouble.

IRS is not an Error Free Robot

Do not assume that IRS is some kind of an organization that cannot make mistakes. It is just a government organization, made of people like you and me. So there is a probability that the tax calculated by the IRS authorities is erroneous. It never hurts to check back on your tax calculation. It will be wise if you hire a professional who can check the tax calculated by IRS for you. A small mistake by the IRS can put you under a different tax bracket and you can be taxed at a higher rate. Tax professionals are trained to spot these mistakes and are therefore worth your money.

The Problem of Tax Identity Theft

Tax identity theft is another issue that most of the taxpayers face. With the convenience of filing taxes while at home from your laptop or tablet has resulted in instances where your tax identity can be stolen by another person (Cyber Criminal) to file phony tax returns under your name. IRS is said to be dealing with this problem but in order to avoid this from happening to you, you should not file your tax electronically when on a public WiFi. Use a secure internet connection at home and ensure that your personal computers and tablets have spyware installed.

Business Identity Theft

Individual tax payers are not the only victims of identity theft; many small businesses across the country have also reported that their identity was stolen by a cyber criminal. These hackers then use the identity of your business to ask for large refunds from the IRS by showing bogus financial statements. According to an estimate provided by Treasury Inspector General for Tax Administration (TIGTA), the IRS can issue fraudulent tax refunds of up to $11.40 billion if this issue is not resolved within a year.

You might never know that your business identity was used by a cyber criminal to file for a refund with the IRS until you receive a notice from the IRS or any other government organization. This can be pretty frustrating and can also lead to huge outflow of cash in case you are required to prove your innocence in the court of law. In order to tackle this tax problem regarding identity theft, businesses can purchase Cyber Risk Insurance. This will limit their financial loss and protect business assets in case the tax identity of your business is stolen. Most insurance companies now also include cyber risk insurance in their existing insurance policies for businesses.

If you need help fixing your tax problems, call us at 407-502-2400, or email us at [email protected].

High Tax Compliance Costs for Businesses

Most of the small businesses are only focused on providing services or selling their product to potential customers. In such a situation, preparation of financial statements often takes the back seat in terms of priorities. When its tax time and you are required to file tax returns of your business, you will most likely find yourself unable to compute the right amount of tax that you are liable to pay the Internal Revenue Service (IRS). In order to avoid looking foolish during tax season, you should start using accounting software. Using accounting software will enable you to record all the transactions in real time that are occurring during the course of your daily business. This will save you from last minute panic and will ensure that you have correctly computed the tax amount to be paid.

A Final Word on Solving Tax Problems

Nobody wants to hide their income to avoid taxes from the IRS. This will make you look like a bad apple in the society and will probably earn you a title of Al Capone Jr. But when you file tax legally, there are many problems that you will encounter that we have discussed above. Many big businesses have the expertise to reduce the probability of occurrence of such problems and even have a team for effective tax planning. But you as an owner of small business or an individual are prone to such risks (like being mistakenly charged high tax by the IRS, receiving notice to file tax on retirement account or not liable for deductions if you lose the receipt of your charity). This can pose a financial risk for the individuals and small businesses in case they are required to defend themselves in the court of law. This is where professional taxation and law firms can be very helpful.

If you are looking to file your tax return this year without getting into hot water, then you should look for professional tax managers. Our professional tax managers can help you in filing of your tax returns in a timely and accurate way which will give you a complete peace of mind. We are a trusted taxation service provider and have been in this business for more than a decade. If you need any other advice or want to know more about our services, feel free to contact us at 407-502-2400 or visit our official website or facebook page for viewing the testimonials of our clients. For requesting a call back, please email us at [email protected].