"Failure doesn’t kill you … it increases your desire to make something happen." – Kevin Costner
As I write this on Monday morning, there are a bunch of tears in Baltimore and San Francisco.
If you’re not a football fan — let me briefly tell you why: yesterday, in Baltimore, a game-tying "gimme" field goal went wide left, and in San Francisco a fumble and another small error (the ball grazing the leg of a player) were largely responsible for an overtime loss. So New England and New York (Giants) are headed to Indy for the Super Bowl.
Little hinges swing big doors, as they say.
Our offices are starting to get pretty busy. Last week, the IRS began accepting e-filed returns (for which they save $3.10 each, which adds up) and we’re getting a bunch of emails and phone calls ((407) 425-2657, by the way) with little questions.
It’s smart to ask the little questions. Because this year, the IRS will be scrutinizing returns in unprecedented ways — and they pay careful attention to those "little" things.
As you know, I don’t always write about taxes in my weekly Notes — in fact, I make a point to put these together differently than all those other accountants who spit out pre-heated leftovers to their clients in the form of canned "tax tips" and useless content. But this time of year is when many of my clients and contacts are figuring out exactly how they’ll be pulling together their tax file … and, well, it’s a pretty important decision. I want to speak to it while there’s time to help.
So, here’s what I mean…
"Real World" Personal Strategy
The IRS is Paying Close Attention
Think tax evasion is a small problem? The Tax Justice Network released a report at the end of 2011 which showed that tax evasion amounts to $337.3 billion per year in the US. Yes, that’s billion with a "B".
This was based on numbers from 1999 to 2006, and is probably even higher in recent years, as the weak economy may have led more people to hide money from the government. As an example, the average tax refund decreased by $100 in 2011 — perhaps people are reporting less income in order to keep more of their money.
Now, it’s hard for us wrap our heads around how much money that really is. Here’s a way to do so: Recently, Congress was unable to agree on a plan which would reduce the national deficit by $1 trillion over 10 years. Over that same time period, tax evasion will cost us well over $3.3 trillion.
Given my profession, perhaps it’s obvious that I’m a big proponent of everyone following the tax rules. When we don’t, it means that everyone else has to pick up the slack. And the consequences of all of this reporting about tax fraud is greater scrutiny on honest taxpayers, and higher tax rates.
The IRS is Catching More Tax Evaders
The "good" news is that the IRS is doing a better job of catching people who aren’t paying their fair share of taxes. Fraud investigations increased by 14% in 2010, while prosecution recommendations (cases that the IRS thinks should be brought to court) increased 18% and convictions increased by 4%.
Again, it’s possible that some of these increases are due to the economic situation of the past few years, but the fact that the IRS decreased its investigation time by nearly 40 days is a sign that the IRS is doing a better job.
Don’t Give In To The Pressure; Avoid Taxes — LEGALLY
Here’s what you should understand — the rise in tax evasion means that the IRS is continuing to increase its scrutiny on every return. But that doesn’t mean you have to give up the fight! There are innumerable LEGAL ways to avoid paying too much in taxes. And, unfortunately, software programs and fly-by-night tax shops don’t do a very good job of proactively seeking them out for you.
But perhaps you know someone who does?