Sunday, April 2, 2023

What you should know, when investing in Foreign Mutual Funds?

It is common knowledge that citizens and permanent residents of the United States who earn money elsewhere in the world must report and pay taxes on that money. The FATCA agreement between the United States and other countries made information about US taxpayers' overseas bank accounts, investments, etc., readily available to the Internal Revenue Service.

A new era of significantly improved cross-border tax openness began in 2010 with the implementation of the Foreign Account Tax Compliance Act (FATCA). U.S. citizens and other U.S. taxable persons who have accounts at foreign financial institutions must now disclose the existence of those accounts.

You must file tax returns in both the United States and the country where the overseas mutual fund is located. Foreign Investment Passive Entities are one such necessity (PFICs).

Hence, U.S. taxpayers run the possibility of having their return audited and having to pay tax, interest, and penalty costs equal to or greater than their return if they fail to correctly record PFICs on their U.S. tax return.

1.     PFICs.

To be considered a PFIC, a foreign company must either have more than 50% of its assets "kept for the production of passive income" or have 75% or more of its income originate from passive sources (interest, dividends, capital gains, rent, and certain royalties). This includes holding cash as well as any investment that isn't a stake in a company.

The vast majority of PFICs are merely "pooled investments" based in a country other than the United States. Certain investments held by non-U.S. pension plans and some foreign mutual funds, ETFs, closed-end funds, hedge funds, insurance products, and so on fall under this category. Even if they are kept in a bank, money market funds can be considered PFICs because they are essentially short-term fixed-income mutual funds.

Unless the foreign pension plan is "qualified" by the United States under the terms of a double-taxation treaty between the United States and the host nation, the PFIC rules apply to investments held within the foreign pension fund. The chances of the IRS discovering hidden PFICs have increased considerably as a result of FATCA. Last but not least, PFIC laws are equally applicable to U.S. citizens living overseas and U.S. citizens living in the U.S., yet the problem is still far more prevalent among U.S. taxpayers residing abroad.

2.                 Tax Treatment

When compared to similarly structured U.S. corporations, the tax treatment of PFICs is exceptionally harsh. If an American invests in a U.S.-incorporated mutual fund that invests in European companies and holds the fund for more than a year, he or she will pay the low long-term U.S. capital gains tax rate of 0%, 15%, or 20%. All revenue (including capital gains) is treated as regular income under the PFIC taxation regime, which applies to the same American investor holding a nearly similar fund listed in Singapore, the UK, or anywhere else outside the U.S.

This gain is taxed over the period of time beginning with the year the PFIC was purchased. During the current year, it is taxed at the shareholder's marginal rate, but for each prior year it was taxed at the highest marginal rate in effect for that year.

All taxes also accrue daily compounded interest beginning on the date of purchase. Distributions from PFICs may be nullified if the overall tax on the underlying investment is high enough. Capital losses from one PFIC can only be used to offset gains from another PFIC, and only under specific conditions.

3.                 Tax Filing Requirement

As a result of the Foreign Account Tax Compliance Act of 2010, a new Form 8621 must be submitted annually for each PFIC. In the past, Form 8621 was submitted only in years in which distributions were made to fund shareholders. No matter how much (or how little) the underlying investments are worth or how they perform over time, it doesn't take long to recognize that submitting Form 8621 for many PFIC investments may quickly build up a tax preparation cost to many thousands of dollars.

All "foreign financial institutions" are now obligated to report immediately to the IRS any and all assets held by U.S. citizens and permanent residents that are located outside the United States, including Passive Foreign Investment Companies (PFICs). It may be difficult to assume that foreign financial institutions would voluntarily comply with such reporting obligations; nonetheless, the severe consequences imposed by the IRS on non-compliant financial institutions have led to practically universal compliance with FATCA-induced laws.

4.                 PFIC compliant investments

It's safe to suppose that the Internal Revenue Service has complete access to the accounts of all U.S. individuals held at overseas banks. The IRS will have little trouble connecting the taxpayer's Forms 8938 and 8621 to the information reported by these financial institutions. The IRS needs this data to verify whether or not you accurately disclosed your PFIC investments and paid the appropriate tax.

All Americans living abroad must be aware that the numerous tax systems impacting cross-border or international investors add significant complexity to international financial planning. Even if investing internationally, American investors must retain their money in U.S. accounts due to PFIC restrictions.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.


Saturday, March 18, 2023

Don't Miss Out: Get To Know Your Flexible Spending Account

What is a Flexible Spending Account?

A Flexible Spending Account, or FSA, is an incredibly useful benefit that can offer you significant tax savings and help you pay for eligible medical expenses. With an FSA, you can set aside money from your paycheck before taxes are calculated, so that you can use the funds to cover healthcare costs. In this article, we'll cover all the essentials of the FSA account and how you can make the most of it.

How Does an FSA Work?

A Flexible Spending Account (FSA) is a great way to set aside pre-tax money for eligible medical and dependent care expenses. It’s a powerful way to cover the out-of-pocket costs associated with healthcare, and it’s a valuable part of any employee benefits package. But what exactly is an FSA and how does it work?

When you enroll in an FSA, you decide how much money you would like to allocate to your account. Your contributions are deducted from your paychecks on a pre-tax basis and deposited into the account. This means that you don't have to pay federal, state, or other taxes on the money that you allocate to the FSA. It’s important to note, however, that some state or local taxes may still apply.

Once the money is in your account, you can use it to pay for a variety of different healthcare-related expenses. These could include things like doctor visits, prescription medications, vision and hearing aids, dental procedures, and medical equipment. FSA funds can also be used for dependent care expenses, such as daycare or other care for children, aging parents, or a disabled dependent.

When it comes time to make a purchase, simply pay with an FSA debit card or provide an itemized receipt to your FSA provider. Your provider will process the expense and pay the provider directly. It’s important to note that FSA funds are typically only available on an as-needed basis and do not roll over from year to year. Any money remaining in your account at the end of the plan year will be forfeited.

An FSA is a great way to save money on many of the out-of-pocket expenses associated with healthcare. It’s important to educate yourself on the rules and regulations of the account to ensure that you’re taking full advantage of all the benefits that come with it.

Contributions and Eligibility

A Flexible Spending Account (FSA) is a great way to save money on eligible medical and dependent care expenses. To participate in an FSA, you must contribute money on a pre-tax basis to the account. Eligibility can depend on your employer, so make sure you understand the details of the plan before signing up. Generally speaking, most employees are eligible to contribute the maximum amount set by the IRS, which is currently $3,050 (tax year 2023) per person. If you’re married, you and your spouse can both contribute to an account and double your savings. Depending on your employer, you may also be able to contribute to a Dependent Care FSA or Health Care FSA, which can be used to pay for childcare or medical-related expenses, respectively.

Flexible Spending Account Rules

Flexible Spending Accounts (FSAs) are valuable tools that allow individuals to set aside a portion of their pre-tax income for healthcare and childcare expenses. To ensure that FSAs are used for their intended purpose, there are certain rules and regulations that must be followed.

The Internal Revenue Service (IRS) has established guidelines for how much money can be set aside into each type of FSA account. For example, the maximum contribution for a Healthcare FSA is $3,050 (Tax Year 2023), while the maximum contribution for a Dependent Care FSA is $5,000.  Additionally, FSA funds must be used within the calendar year they are set aside, with any unused funds reverting back to the individual’s employer at the end of the year.

It’s important to understand the rules and regulations associated with FSAs so that you don’t miss out on this valuable benefit. Knowing the rules can help you maximize the use of your pre-tax income and ensure that you are taking advantage of all of the benefits offered by an FSA. 

Benefits of an FSA

A Flexible Spending Account (FSA) is a valuable tool that can help you save money and make the most of your benefits. It provides an easy way to set aside pre-tax dollars to pay for eligible medical, dependent care, and transit expenses. The main benefit of an FSA is that it allows you to save money by reducing your taxable income each year. This can result in significant savings, particularly for taxpayers in high tax brackets. 

In addition to tax savings, FSAs offer convenience and flexibility. You can easily use your account to pay for eligible expenses, such as copayments or deductibles for health insurance plans, or care for dependents like children or elderly parents. You can also use the funds to pay for parking and mass transit expenses. And you can use your FSA debit card to cover the cost of prescriptions or over-the-counter medications. 

An FSA also offers protection from unexpected medical expenses. With an FSA, you can set aside funds each year to be used for medical expenses that you would otherwise have paid out of pocket. This benefit can provide peace of mind knowing you have a reserve of funds available if a medical emergency arises. 

Finally, with an FSA, you have the added advantage of knowing that you are making the most of your employer's benefits. By taking full advantage of the benefits offered by an FSA you are helping to ensure that you are getting the most from your employer's benefits package. 

In conclusion, a Flexible Spending Account offers many benefits that make it an excellent tool for saving money and making the most of your employer's benefits. The tax savings, flexibility, convenience, and protection it offers make it an invaluable part of any benefits package.

Tax Savings

A Flexible Spending Account (FSA) is an incredibly beneficial way to save on taxes while still covering health care expenses. With an FSA, you can set aside a portion of your pre-tax income to pay for out-of-pocket medical expenses. Not only does this reduce the amount of taxes you owe, but it also allows you to manage your health-care related costs without draining your bank account. That’s because the money you set aside in the account is deducted from your pay before taxes, which means you will owe less in taxes. With an FSA, you can save up to 40 percent of your total health care costs. Additionally, you may be able to use the money in your FSA to pay for vision care, prescription medications, and over-the-counter medications. So don't miss out on the potential savings offered by an FSA. Get to know your options and start taking advantage of this valuable tax savings now.

Medical Expenses Covered by an FSA

Under a Flexible Spending Account (FSA) plan, your eligible medical expenses can be paid for with pre-tax dollars. This can save you money and make necessary medical care more affordable. Eligible medical expenses can include doctor visits, hospital stays, prescription medications, vision exams, and eyewear, to name a few. An FSA plan also covers preventative care, such as check-ups and immunizations. Other medical expenses that may be covered include mental health services, home health care, and medical equipment like crutches, wheelchairs, and hearing aids. Before you sign up for an FSA plan, check to make sure the medical expenses that you plan on using are eligible for reimbursement.

FSA Account Management 

Managing your Flexible Spending Account (FSA) is a crucial part of ensuring you are getting the maximum benefit from it. By properly managing your FSA, you can reduce your overall healthcare costs and better utilize the funds you have set aside for medical expenses. Here are a few things to consider when managing your FSA account. 

First, it is important to be mindful of the “Use-Or-Lose” rule. This rule states that if you do not use all of your FSA funds by the end of the plan year, you will lose the remainder. To ensure that you are correctly utilizing your funds, create a budget for yourself as soon as you receive your FSA funds. Utilize this budget to prioritize and accurately allocate your FSA funds. Additionally, it is important to track your spending throughout the year, so you know exactly how much of your money is left and where it is being spent. 

Another important aspect of managing your FSA account is to make sure you only use the funds for qualified medical expenses. The IRS has a list of qualified medical expenses that you can use your FSA funds for. If you are unsure if a particular medical expense is qualified, check with your FSA administrator or the IRS to get clarification. It is important to remember that if you use your FSA funds for non-qualified expenses, you will have to pay taxes and a penalty. 

Finally, it is important to be aware of the IRS documentation rules. Generally, the documentation of your medical expenses must include an itemized statement from your provider, the date of service, the amount of the expense, and the type of service. If you do not have the necessary documentation, you may be required to pay back the amount to your FSA.

Managing your FSA account can seem daunting but being aware of these key points can help you stay on track and make sure you are getting the most out of your FSA funds.

Eligibility and Enrollment 

Understanding eligibility and enrollment for a Flexible Spending Account (FSA) is essential for taking full advantage of its benefits. Generally, employees of employers who offer FSAs are eligible to enroll. If your employer does offer an FSA, you may need to enroll during open enrollment. However, there may be other times when you can enroll, including during a qualifying life event or when you have a change in your employment status. 

Once you complete enrollment, you will typically have a grace period to submit claims for the current year and should make plan changes, if necessary. If you have any questions regarding eligibility or enrollment, be sure to contact your employer or the benefits administrator.

Claims and Reimbursements 

When it comes to your Flexible Spending Account (FSA), your claims and reimbursements are an important detail to understand. With an FSA, you can set aside pre-tax money to cover eligible medical and dental expenses, making it a great way to save. When you submit a claim, you'll typically have to provide a receipt and other proof of your eligible purchase. Once it's been approved, you'll get your reimbursement either in the form of a check or direct deposit. In some cases, you may also be able to use a debit card to pay for expenses that are usually reimbursed through your FSA. It's important to read your FSA plan carefully so that you understand the claims and reimbursement process and know what type of paperwork needs to be submitted.

Managing Your FSA Funds

Managing your Flexible Spending Account (FSA) is a great way to make the most of the funds you set aside each year. It’s important to understand the rules that come along with these accounts, such as the “use it or lose it” rule, which means that any unused funds at the end of the plan year are forfeited. It’s also important to understand the fees associated with the plans, as well as the specific types of medical expenses that can be purchased with your FSA funds. Knowing the ins and outs of FSA accounts can help you better manage your money and ensure you are making the most of your funds.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.

Crypto Taxes Made Easy: How To Report Using Form


Do you own any cryptocurrency and want to know how to file taxes on it? It can seem complicated, but it doesn’t have to be. This article will walk you through the process of completing form 8949, the document required by the IRS to report your crypto taxes. We’ll cover an overview of crypto taxation, how to calculate profits and losses, and how to report donations or gifts of cryptocurrencies. After reading this article, you’ll have all the information you need to report crypto on your taxes.

Overview of Crypto Taxation

Crypto taxes are a fairly new and often confusing topic for many individuals and businesses. With the recent increase in cryptocurrency transactions, understanding the taxation of digital assets is vital for staying compliant with the law. In the United States, the Internal Revenue Service (IRS) considers cryptocurrency a property, not a currency, and thus it is subject to capital gains tax. Cryptocurrency traders and investors are required to report all taxable events to the IRS using the appropriate form. 

This article will provide a general overview of crypto taxation and how to correctly report using the required forms. It is important to note that this information is provided in a null tone and should not be taken as specific legal advice. Rather, it is intended to provide general guidance and resources. 

IRS has provided comprehensive frequently asked questions and answers on digital assets. 

The first step when filing cryptocurrency taxes is to calculate all of your taxable gains or losses. It is important to understand taxable events transactions involving cryptocurrency are taxable. 

For example taxable events are, 

Once all of your taxable events have been identified, you must calculate the gain or loss for each event. This can be done by subtracting the cost basis (or original purchase amount) from the proceeds (or amount received) for every transaction. The resulting gain or loss must then be reported to the IRS. 

In addition to calculating and reporting gains and losses, you will also have to report any income earned from activities such as mining and staking. For both of these activities, you must report any income received (or mined) in the form of cryptocurrency as income. 

Once all gains, losses, and income have been identified and calculated, it is time to report all of this information to the IRS. This is done with Form 8949, which can also be found on the IRS website. When filing, make sure to include all of your transactions and accurately report the amount of gain or loss for each. Additionally, any income earned from mining or staking must also be reported. 

Crypto taxes can be a tricky subject, but understanding the basics is the first step towards accurately filing your taxes. It is important to consult a tax professional if you are unsure about any of the information presented here.

Guidelines for Reporting Cryptocurrency Income

When filing taxes, it is important to report any cryptocurrency income. Most transactions involving cryptocurrency are taxable and should be included on your tax return. The exact amount and type of income you must include will depend on the type of transaction and how you use the cryptocurrency.

In general, crypto transactions that involve the exchange of one type of crypto for another, the sale of crypto, the use of crypto to purchase goods, and trading cryptocurrency for another currency should all be reported. 

When reporting cryptocurrency income, you'll need to fill out Internal Revenue Service (IRS) Form 1099-K. This form is used to report transaction-level information related to cryptocurrency activity and income earned. To accurately fill out this form, you'll need to include details regarding the dates and values of each transaction, as well as any applicable taxes paid on the cryptocurrency income. 

Finally, when it comes to capital gains or losses associated with cryptocurrency trading, you should report them on Form 8949. This form allows taxpayers to report gains and losses separately for transactions of the same type and asset. By accurately reporting your cryptocurrency income on the required forms, you can ensure that you are in compliance with any applicable tax laws.

Calculating Profits and Losses

When it comes to filing your crypto taxes, you need to report any profits or losses resulting from cryptocurrency transactions. To do this, you will need to calculate your gains and losses from the sale or trade of cryptocurrency. This will include any income and expense incurred during the course of trading. To calculate this, you will need to track all of your purchases, sales, and exchanges of cryptocurrency for the tax year. Additionally, you will need to include any transaction fees incurred. Once you have all of this information, you can then calculate your total gains or losses for the tax year.

How to File Form 8949

When it comes to filing your crypto taxes, Form 8949 is a key form you will need to include with your return. The form is used to report capital gains and losses from your cryptocurrency transactions. It is important to be aware of the different categories of gain that may apply on Form 8949.

To properly complete Form 8949, you will need to include certain information, such as date of the transaction, cost basis, gain or loss, and other relevant details. When you are done, you will need to attach this form to your federal tax return. 

It is important to note that you will need to file a separate Form 8949 for each type of cryptocurrency you have traded, such as Bitcoin, Ethereum, and Litecoin. This allows you to accurately report any capital gains or losses that you have incurred from each type of transaction. Additionally, you will also need to include a summary of your total capital gains and losses from all types of cryptocurrency transactions on Schedule D of your federal tax return. 

It is important to take the time to properly compile and submit your Form 8949 and other required documents, as failure to do so could result in penalties from the IRS.

Reporting Donations, Gifts, and Investment Income

When it comes to taxes, donations, gifts, and investment income must be reported regardless of whether they are in the form of cryptocurrency or traditional currency. Regardless of the form, the Internal Revenue Service (IRS) requires that these transactions be reported on your federal taxes. 

When reporting donations and gifts, the IRS generally does not require that the recipient of the gift or donation pay taxes on them. However, donations and gifts of cryptocurrency are still subject to special rules. For example, if the donor paid for the gift or donation using property or services, then the recipient will be liable for any applicable capital gains taxes on the amount received. 

When it comes to investment income, such as income from capital gains or dividends, the same rules apply whether the income is in the form of cryptocurrency or not. This means that if you remain in possession of the cryptocurrency for at least a year, then you will be eligible for a capital gains tax rate. The same holds true if you sell the asset within a year, in which case you will be taxed based on your ordinary income tax rate. 


To report donations, gifts, and investment income on your federal taxes, you will need to include these amounts on your Form 1040, U.S. Individual Income Tax Return, or any other applicable tax form. When reporting cryptocurrency-based donations, gifts, and investment income, be sure to include the currency’s name, transaction date, and the amount received in U.S. dollars. 

If you are unsure of how to report donations, gifts, or investment income from cryptocurrency transactions, you should consult a qualified tax specialist to ensure that you are in compliance with federal laws and regulations.

Reporting Donations or Gifts of Cryptocurrencies

If you are donating or gifting cryptocurrencies, it is important to record the fair market value of the cryptocurrency in U.S. dollars at the time of the donation. You should include this information on your tax return and report it using IRS Form 1040 Schedule A. Additionally, you are required to obtain a letter from the recipient verifying the donation. This information is necessary to ensure that you are claiming the correct amount of deduction for the donation. Keep this same information when reporting any other form of property, such as stocks or real estate.

Reporting Investment Income from Crypto Investments

When it comes to reporting your crypto investments on your taxes, the process can be complex. First, you will need to include the income gained from your investments on your tax return. If you've made any profits from purchasing, trading, or exchanging cryptocurrency, you'll need to include these amounts in your income. 

If you have made a capital gain from the sale of cryptocurrency, you'll need to report these gains on Schedule D of your tax return. You will also need to provide details about the date of purchase, cost basis, and sale amount. You may also need to include additional forms such as Form 8949 to report any capital gains or losses. 

When reporting your crypto assets, it's important to make sure you include the correct information and pay the correct amount of taxes. Be sure to consult with a tax professional if you have any questions or need help with the process.


We hope this article has been helpful in understanding the basics of crypto taxes and how to properly report them using Form 1040. Although the process can seem complicated at first, by taking the time to understand the rules and regulations and keeping detailed records, reporting crypto taxes can be made simple and straightforward. To ensure accuracy, it's always important to work with an accountant or tax professional who is familiar with this type of transaction. 

Crypto taxes can be complicated — but with the right information, it doesn’t have to be. We hope this article has provided a useful overview of how to report crypto taxes using Form 1040. For more information about filing crypto taxes, including detailed instructions on filing the associated forms and how to apply the applicable tax rates, refer to the IRS website. 

In conclusion, crypto taxes are complex and require special attention to stay compliant with the law. Fortunately, there are a variety of resources available to help you understand the reporting process and get it done quickly and accurately. By knowing the rules, keeping detailed records, seeking professional help when needed, and taking advantage of the resources available, crypto taxes can be made easy.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.

IRS provides easy access to tax refund status with ‘Where’s My Refund?’ tool; no need to call

Issue Number:    IR-2023-46

WASHINGTON – The Internal Revenue Service reminds taxpayers that the "Where's My Refund?" tool on is the most convenient way to check the status of 2022, 2021 and 2020 tax refunds. IRS2Go, the mobile app, offers another way for users to check their refund status.

Information for the most current tax year filed is generally available within 24 hours after the IRS acknowledges receipt of a taxpayer's e-filed return. If they filed a paper return, taxpayers should allow four weeks before checking the status.

To use "Where's My Refund?," taxpayers must enter their Social Security number or Individual Taxpayer Identification number, filing status and the exact whole dollar amount of their expected refund from the original tax return for the year they're checking.

The IRS updates the tool once a day, usually overnight, so there's no need to check more often. This prevents individuals from having to contact the IRS for updates unless the tool requests them to call.

"Where's My Refund?" displays progress through three phases:

  1. Return Received.
  2. Refund Approved.
  3. Refund Sent.

Taxpayers will get personalized refund information based on the status of their tax return. The tool will provide an actual refund date once the IRS processes the return and approves the refund.

The fastest way to get a refund is by filing electronically and using direct deposit. Taxpayers who don't have a bank account can find out how to open a bank account at a FDIC-Insured Bank or the National Credit Union Locator Tool.

What to expect
Even though most refunds are issued in less than 21 days for taxpayers who file electronically and choose direct deposit, some refunds may take longer. Many different factors can affect the timing of a refund, such as if the return has errors, is incomplete or is affected by identity theft or fraud.

Other causes for delays:

  • The return may require additional review.
  • The return needs a correction to the Earned Income Tax Credit or Additional Child Tax Credit.
  • The time between the IRS issuing the refund and the bank posting it to an account may vary since many banks do not process payments on weekends or holidays.

The IRS will contact taxpayers by mail if more information is needed to process a return. IRS phone and walk-in representatives can only research the status of a refund if:

  • 21 days or more have passed since it was filed electronically.
  • Six weeks or more have passed since a return was mailed.
  • "Where's My Refund?" tells the taxpayer to contact the IRS.

If a taxpayer refund isn't what is expected, it may be due to changes the IRS made to the return. These changes could include corrections to the Child Tax Credit or Earned Income Tax Credit amounts or
an offset from all or part of the refund amount to pay past-due tax or debts. More information about reduced refunds is available on

Filing a tax return
Taxpayers should make their first stop to get information on how to file. There is information on:

As a reminder, the deadline for most taxpayers to file a tax return, pay any tax due or request an extension to file is Tuesday, April 18.

This news release is part of a series called the Tax Time Guide, a resource designed to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax for Individuals.

More resources:

Free tax return preparation for qualifying taxpayers

 Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.

Saturday, March 4, 2023

Be Prepared: What Can Cause An IRS Audit?

Tax season is upon us, and though you may be dreading having to report your earnings, you’ll want to make sure you do it correctly. Filing mistakes and blatant fraud can lead to an IRS audit. As unsettling as that thought may be, it’s important to be aware of the various triggers that can result in the scrutiny of the Internal Revenue Service. What can cause an IRS audit? In this article, we’ll provide an overview of the most common reasons for IRS audits, as well as tips on how to reduce your chances of being audited.

1.  Key Points

·What are audit trigger points? Inaccurate information or missing information

·How to avoid it?

2.Failure to Report All Income

Failure to report all of your income is one of the most common reasons that you may find yourself facing an IRS audit. The IRS collects all of your income information from the various forms that you submit throughout the year, such as 1099 forms for income from investments or W-2s for income from wages, as well as income from self-employment. If you fail to report any of this income, the IRS can identify it and initiate an audit as a result.  To avoid this, it’s important to double-check that you have reported all of your income before submitting your tax return.

3.Misreporting Income or Expenses

One of the most common causes of IRS audits is misstating your income or expenses on your tax return. This could be intentional, such as leaving specific items out, or unintentional, such as forgetting to include a receipt for a deduction. It is important to always be accurate and truthful when filing taxes. The IRS has a variety of sophisticated methods for determining if a taxpayer has misreported income or expenses. If you are caught doing so, you could face hefty fines and penalties, as well as being required to pay back any taxes that should have been paid. To avoid an IRS audit due to misreporting income or expenses, always ensure you are being honest and accurate when completing your tax return.

4.Taking Excessive Deductions 

One thing that can trigger an IRS audit is taking excessive deductions. It’s important to accurately report all of your deductions on your taxes, including itemizing deductions if necessary. However, if you take too many deductions, the IRS may decide to investigate you further. Be sure that any deductions you take are allowable under IRS regulations to avoid an audit. When in doubt, consult with a tax professional to make sure you’re in compliance with IRS rules.

5.Underpaying Estimated Taxes 

One of the most common reasons for an IRS audit is underpayment of estimated taxes. When you are self-employed or have other sources of income outside of your job, you may be required to make estimated tax payments to the IRS. If you do not make estimated payments or do not pay the required amount, you could be subject to a tax audit. It is important to accurately estimate your taxes each year and make timely payments so you can avoid an audit.

6.Incorrectly Filing as a Business 

Filing as a business can be beneficial for those who run their own business, but it can lead to an IRS audit if done incorrectly. If the IRS finds that an individual is not running an actual business or is misclassifying their expenses and income, they can choose to audit. Incorrectly filing as a business can result in an individual being taxed on their self-employment income as well as potentially paying back taxes, interest, and other associated fees. To avoid an audit, individuals should make sure they are filing their taxes as a business accurately and in accordance with IRS regulations.

7.Claiming Large Charitable Donations 

Claiming large charitable donations is one of the top reasons for IRS audits. When claiming a large donation, the IRS is likely to take a closer look to make sure the deduction is valid. Therefore, it is important to be aware of the rules and regulations associated with claiming charitable donations. Documentation to substantiate the donation is critical when claiming large deductions. These documents should include records such as receipts from the charity, details from the charity regarding the donation, and a written appraisal of any non-cash donations. Furthermore, when claiming large donations, taxpayers need to be especially careful to avoid inaccuracies which could trigger an audit.

8.Claiming Too Many Dependents 

One of the most common reasons for an IRS audit is claiming too many dependents on your tax return. When you are preparing your tax return, you should always be sure to double check how many dependents you are claiming. If you claim more dependents than you actually have, it could trigger an audit as the IRS may suspect that you are trying to take advantage of them. Make sure to verify the number of dependents that you can legally claim and always ensure that you are accurately representing the information on your tax return.

9.How to Minimize Your Chance of an IRS Audit

When it comes to taxes, the last thing most of us want to think about is the dreaded IRS audit. But sometimes, circumstances can lead to an audit. To minimize the chances of your return being audited, it’s important to understand what usually causes the IRS to take a closer look at your finances. Here are some of the most common triggers for an IRS audit.

  • Inconsistencies Between Your Tax Return and Your Income Reports: If the amount of income you report on your tax return doesn’t match the amount reported to the IRS by your employer or other payers, it has the potential to raise some red flags. That’s why it’s so important to double check your information and make sure that your numbers are accurate when you are filing your tax return.
  • Large Deductions: If you claim a large deduction for business expenses, it can trigger an audit. To minimize your chances of an audit, make sure you have the necessary documentation to back up your deductions.
  • Self-Employment Income: If you’re self-employed, the IRS is likely to take an extra close look at your finances. Even if you’re running a legitimate business, your return can be flagged if the numbers don’t add up or if your deductions seem too high.
  • Home Office Deduction: If you’re claiming a home office deduction, the IRS may want to make sure that your office actually qualifies as a legitimate business expense. When claiming this deduction, be sure to keep detailed records and make sure that your office space meets the criteria set by the IRS.
  • Cash Payments: If you accept or make large cash payments, the IRS may want to investigate to make sure you’re not engaging in any suspicious activities.

These are just some of the more common triggers for an IRS audit. To minimize your chances of an audit, make sure that your paperwork is in order and that you’re claiming only legitimate deductions. If you ever have questions about what you can and can’t claim, it’s a good idea to consult a tax professional.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.

IRS Audit. What you need to know?

Just when you thought you were done with taxes, the IRS sends a letter informing you that an audit has been initiated.

Certain audits won't result in a higher tax bill from the Internal Revenue Service. Nonetheless, you can become anxious if you receive a letter. Is there going to be a significant fine? To what extent is the IRS privy to information about your life that you are unaware of?

You probably didn't intentionally do anything improper. National Taxpayer Advocate for the IRS's Taxpayer Advocate Program Erin Collins has stated that the IRS is not out to punish people for honest mistakes.

The Internal Revenue Service is well aware that tax day is a bittersweet one for many and that some taxpayers will go to great lengths to avoid forking over their dues. This is the main reason why the IRS investigates tax returns submitted by individuals and corporations.

1. Key Points

  • What is an IRS audit?
  • IRS method of communication
  • How to deal with IRS Audit.

2. Tax audit definition

If the Internal Revenue Service suspects that you haven't paid all of the taxes that you owe, they may request an audit of your tax return. So, you may need to submit supporting documents, such as receipts, to verify that you are qualified for a credit or deduction you claimed on your tax return.

3.Where do IRS audit letters come from?

The Internal Revenue Service will always communicate with you by sending a letter in the mail. You will never be contacted by phone or e-mail in the event of an audit being conducted. If you are contacted in this manner in the beginning, the transaction is probably fake. IRS  letter will provide you with all of the information that you want regarding your audit, including the date by which you are required to take action.

After that, the vast majority of audits will continue to be carried out by postal correspondences; nevertheless, a tiny number of audits will require you to speak with an IRS agent either in person or over the phone in order to amend your return.

4.What does an IRS audit letter look like?

This is an example of the kind of letter that the Internal Revenue Service (IRS) could send to a taxpayer to inform them that their taxes are being audited. The letter will provide you with all of the information that you want on your audit, including the date by which you are required to take action.

It is essential that you check the accuracy of all of your personal information, including your Social Security number, address, and contact information.

You can register an online account with the Internal Revenue Service (IRS), if you haven't done so previously, and use it to examine digital copies of notices that have been sent to you.

5.How many years back can you be audited?

According to the Internal Revenue Service (IRS), an audit that the IRS performs on you may include returns that you have filed during the past three years.

"In the event that we find a significant mistake, we might tack on some additional years. In most cases, we don't look further back than the previous six years "according to a post made on the website of the organization. "The Internal Revenue Service makes every effort to conduct audits of tax returns as quickly as feasible after they have been submitted. As a result, the majority of audits will focus on returns that have been submitted during the last two years."

6. What should you do if you get audited? 

The initial step should be to "really open the letter," as this is the most important step. It's possible that a lot of individuals will be tempted to throw them away because they anticipate that it will contain unfavorable information. Ignoring correspondence from the government is the worst thing that you can do as a taxpayer. You need to get back to us as soon as possible, either in writing or by giving us a call. In most cases, the letter you get from the Internal Revenue Service (IRS) will tell you how many days you have to answer to their inquiry. You also have the option to seek additional time to respond.

Failure to answer may result in the assessment of further penalties and interest. It is also possible that you will lose the right to appeal the fees that the IRS thinks you owe to them. It is also possible that it will exacerbate the situation and lead to a legal case.

Once an audit has been initiated, it is vital that you cooperate with the IRS auditor and establish a positive working relationship with them. Get the help of a qualified professional to assist you and handle your situation.

Contact Surya Padhi at Sure Financials for any question and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  New Homepage - National Association of Enrolled Agents ( Visit Welcome | Sure Financials & Tax Services, LLC ( for more information and contact us by calling +1908.300.9193.


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