Catching up with Taxes from the past few years: quite a few questions
Thanks in advance.
I stopped filing in 2009 due to several reasons I won't go into, but I was strapped for cash and not wanting to deal with even filing.
I just went through the free TurboTax form for 2013 in order to use as documentation to verify income for an apartment.
Here's the thing-- I honestly have no clue how much I've made. The last few years, due to medical issues and a few other things, had
me working less (almost at bare subsistence levels) and so my plan is to go from what I was claiming in 2009 and then bring it up
incrementally to what I'm now making (or made in 2013) and actually overshoot that a bit for reasons I wrote below.
I expect for 2010, 2011, 2012, and 2013 to owe a total of around $10,000 (or maybe as high as $13,000 since I have looked at how
harsh the penalties will be) which I am then planning to pay off weekly or monthly as I throw myself back into dancing.
Please keep in mind that I can't claim medical hardship (or at least, I don't think I can) because I've been digging myself out of my condition
with exercise, diet, and a few other things but have not visited a doctor except for a chiropractor a handful of times-- so I don't have medical
documentation. I did have a family member die so I guess I could claim casualty (if that even counts) but I'd hate to do that since I wasn't
talking to them anyway so it just seems gross to say "hey, yeah, I was completely bereft for six months not working because of a death in the
family."
I was planning on using a tax-prep service like I did for the years preceding 2009, but just recently realized that the person I considered an
accountant was not actually an accountant but merely a tax prep person (he came highly recommended and I'm thankful for his help, but if he's
not an accountant, then I'd rather put my big girl panties on and file myself.) I know that an audit can come for no reason, but I've read in the past
that if you have an accountant, your risk of auditing is cut in half (from something like 2% of those who file, versus 1% for those who use an accountant.)
I've also read that if you make way more than what I'm currently making (in the hundreds of thousands) your chance of auditing goes up to as high
as one in eight chance. So if I'm making less than $40,000, does any one have any first hand experience with how likely they are to audit? I've had
zero high-ticket purchases, and all of my documentation available actually amounts to WAY less than what I'm filing because I've paid a lot of stuff
in cash. I could conceivably pay less in taxes but I'm just going to suck it up and pay what's owed.
This impacts me in how I file my taxes because of the turbo-tax audit shield thing for $40/year filed. I'd love to get that, but at the same time, I don't have
any real proof of what I've made, and everything added up would equal less than what I'm filing. I would hate to be audited and then have them say,
well you could have made 80K so you're just going to have to pay taxes on that (or something ridiculous like that.) Do they only do that if they have
some actual proof that you made more than you're filing for in terms of bank statements, car payments, insurance payments, and what it would cost
the average person to live in my neighborhood (which I've read is sometimes used)?
Should I get the audit shield because I'm not sure what they can really do since there would be an absence of proof on both my end (except I probably
could make a convincing argument that I made less than what I'm claiming) and the federal government's if they were to say I made way more than what
I'm claiming?
Also, I tried to find the form to pay taxes on two things:
1. I sold on Amazon for awhile and made less than a thousand dollars. I just absorbed that into my total filing amount because I couldn't find a separate
form and Amazon said I didn't make the threshold for them to send me the correct form (it was a something K form.)
2. I've made some money on Mygirlfund and IMlive--I would guess around $3,000 total which is also taken into account in my lump "what I made this
year." I pretty much just overestimated because it looks good for the apartment I'm applying to, and because way back when I first started filing, I'm sure
I underreported (without meaning to, of course) so I just figure it's good karma to just pay the IRS a good amount of money for 2010-2013 and then just
start doing estimated quarterly taxes starting this year. Anyway, with MGF and IMLive-- I don't think I'm going to be sent any forms....so am I fine or
should I try to track down some separate form and minus the $3,000 from what I'm filing and have an additional form with that 3,000 under a different
job heading?
Oh, and here's another question:
Should I make sure to file all the years at once? That's my plan, but just throwing that question out there.
Re: Catching up with Taxes from the past few years: quite a few questions
This is 'messy' to say the least. All I can say is that the TurboTax 'audit shield' service isn't going to have much value in the absence of professional appearing profit & loss accounting records for your business.
Quote:
I would hate to be audited and then have them say, well you could have made 80K so you're just going to have to pay taxes on that (or something ridiculous like that.) Do they only do that if they have some actual proof that you made more than you're filing for in terms of bank statements, car payments, insurance payments, and what it would cost the average person to live in my neighborhood (which I've read is sometimes used)?
In cases involving poor past tax 'compliance' ( i.e. failing to file and pay estimated taxes and/or tax returns ), a lack of 3rd party documention ( i.e. 1099's ), and poor business income record-keeping, an IRS auditor may indeed deem 'self-generated' income reports provided by the person under audit to be a 'work of fiction'. This is especially the case for people working in 'cash' businesses ... where a major portion of actual income stems from 'cash' payments lacking 3rd party documentation.
In such cases, the IRS can indeed deem self-generated business records and reported incomes as 'less than credible', and resort to 'estimating' the person's 'real' income based on some of the following ...
- deposits and withdrawls from the person's bank account(s)
- documented monthly payments for apartment lease, car payments, student loan payments, credit card payments etc.
- zip code specific estimates for other monthly costs i.e. groceries, gasoline, utilities, etc.
- observed 'lifestyle' based estimate of spending on 'luxury' items ... i.e. big screen tv in living room, designer clothes in closet
... based on the IRS assumption that any moneys the person has spent must have first been earned as income !
Indeed the burden of proof of showing that actual earnings did not approach the levels that the IRS has 'estimated' falls to the person, not the IRS !!! And in the absence of well kept business records and 1099 3rd party reports of actual income, that burden of proof is impossible to meet.
Thus if you are serious about cleaning up past years' tax filings and payments, you could utilize the same methods the IRS does to 'reconstruct' income levels via tracking down and adding up your past spending levels.
I would also add that, thanks to the ACA, IRS auditors now have a 'new' area to work on ... which is a bit counter-intuitive. That area is identifying whether taxpayers are legitimately entitled to public health exchange insurance premium subsidies ( financed by other taxpayers ), versus automatically enrollable in expanded Medicaid ( which allows states to recover costs from recipients once they reach age 55 ). Because of the Medicaid 'claw back' provisions, a large number of people are apparently 'inflating' their 2013 reported incomes to exceed the 133% of Federal Poverty Level ( = $15k per year ) of earnings in order to become eligible for public health exchange insurance / taxpayer subsidies of about $2,500 per year ... plus escaping an unwelcome 'bill' from their state Medicaid agency on their 55th birthday for the total amount of money Medicaid paid out to provide them 'free' health care benefits over the years prior to their reaching age 55.
Not reporting an earnings level above 133% of FPL results in the person receiving 'free' Medicaid benefits now, but being 'billed' for the sum total of Medicaid bills paid by the state, plus ~$2,000 per year worth of state Medicaid 'administrative fees', when they reach the age of 55. While this Medicaid 'bill' won't actually be recovered until the person dies, it WILL result in the state placing leins on any assets / property the person has managed to accumulate prior to their 55th birthday. This in turn may make it impossible for that person to sell or transfer ownership of their house, may make it impossible for that person to access ( some portion of ) moneys set aside for retirement etc.
From the federal gov'ts point of view, people earning $15k+ per year represent a current year increase in 'tax burden' ( thanks to the taxpayer funded premium subsidy cost ) which can never be recovered, whereas Expanded Medicaid recipients merely represent a 'loan' ... the costs of which may be recovered by the gov't later.
Re: Catching up with Taxes from the past few years: quite a few questions
On April 15th drop your 2013 taxes in the mailbox.
Expect at some point to get a 'hey we have missed you' letter, or rather 3 for past years, or maybe not.
Plan that they will come at some point.
I would look on the internet to see if there is any wisdom on what time of year to send in crazy or old stuff, but assume they will be looking at them.
Start with the oldest, but as soon as you send in one old one, you can bet if they missed you on the 2013 filings, the computer will figure it out after the 2010 filing.
When they send you a letter respond, give as little truthy info as possible [gee I was really ill and barely working, blah blah] as it will be written down and used against you as they say. But stay in contact, don't be cute. Individual agents and clerks can have a lot of discretion as to how hard to chase you, and can be helpful or not.
They will want a plan, with as much cash upfront as possible
At the end of the day, they want their money. For low dollar cash income people[IE not John Gotti] they do understand the whole 'blood from a stone' thing. Not much good dunning someones paycheck who doesn't get a paycheck. Don't try to claim less income than your bank deposits or what you paid on your credit cards, or try to write off your new power boat, and you might stay under the radar.
Re: Catching up with Taxes from the past few years: quite a few questions
Oh, and paying taxes is not tax deductible, so if you claim 10k in income last year, and 10k this year, and pay them 20k in back taxes, they will figure that out................