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A family member who voluntarily forgives a loan over $14,000 is considered to be gifting the value of the loan to the recipient. There are no tax consequences to the borrower of the money if the lender (family member) forgives the loan. However, if the lender was charging interest and the borrower defaulted on the loan then the borrower will experience tax consequences.
→ Read MoreThe IRS uses three techniques when selecting audits. The first technique is computer screening and random selection. The IRS sets up random numerical formulas to select a certain number of people for auditing within a specified group. The next technique is related examinations. When the IRS audits a business, they also audit anyone who worked for that business. If your records do not match the documents they have on file, then you will be formally audited. The final technique is document matching.
→ Read MoreWhat effect does marital status have on federal taxes?
→ Read MoreAlthough the Internal Revenue Service (IRS) has increased the number of IRS audits in the past decade, most taxpayers do not need to worry about being selected for a tax audit. The IRS spends most of its time and resources pursuing very high income taxpayers and corporations. Taxpayers who earn less than $100,000 need not worry as long as they are honest and file their tax returns on time. The IRS selects tax returns for tax audit by using a computer program called the Discriminant Inventory Function (DIF) system.
→ Read MoreAccording to the Internal Revenue Service (IRS), tax returns are selected for audit by using a computer program called the Discriminant Inventory Function (DIF) system. This system gives each tax return a numerical score. Nearly all tax returns that receive a high DIF score are audited because the IRS believes that there is a good chance that after auditing high DIF score tax returns, there will most likely be a change in the amount of tax owed by the taxpayer.
→ Read MoreThe basis is any property is the cost of the property plus any additions or improvements paid for over the life of the property. There are exceptions to this general rule. Property that is inherited receives a stepped up basis or a stepped down basis to the fair market value of the property as of the date of the decendent’s death. Property that is gifted to someone carries the same basis as that of the donor of the gift, unless the fair market value is lower than the donor’s basis, and in that instance the basis is stepped down to the fair market value.
→ Read MoreThere is no limit on how many times a taxpayer can be audited by the IRS. Typically, the IRS will initiate a second audit if they discover discrepancies during the first audit that gives them reason to believe that additional tax returns for other years may also contain inaccurate declarations of income or improper deductions. If you are a business owner and your business tax return gets audited, it is a strong possibility that the IRS could issue an audit notice for your personal return.
→ Read MoreThe IRS typically looks for discrepancies in the following: Schedule A (itemized deductions, Schedule C (profit or loss from a business) and Schedule F (profit or loss from a farm).
→ Read MoreThe income or loss will be attributed to the estate or to the heirs for income tax purposes.
→ Read MoreGet the information you need about the tax treatment when mortgaged property is sold.
→ Read MoreFind the right lawyer for your legal issue.
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