Frequently Asked Questions

Q1 - When I was transferred to another state, my wife refused to go with me. I had to go but I came back on a Christmas Eve only to find that another man had moved in with my wife, and they were hosting an all night party. When I tried to break it up, I was thrown out of the house. Two days later, I waited until the house was empty, entered, put my wife's clothes on the stove, and burned them. But the fire goes out of control and the house burned down. The insurance company refused to pay me, so can I claim casualty loss deduction? Michael Baldwin, Ft Lauderdale - Florida

A1 - I am afraid not. There are similar cases like yours, although your story is different. However, you cannot claim a casualty loss for burning your own house. In addition, the law does not encourage anyone to settle disputes with fire.

Q2 - I lost my audit appointment; I received an agreement letter to sign for payment. What should be my next step? Tifanny Mcbride, NY, NY.

A2 - Well, it is not the end of the world. You have two choices: you can accept your fate or you can go to Tax Court. According to the IRS, 15% of all taxpayers who appeal an audit over 30,000 taxpayers per year file a Petition in Tax Court after losing their appeals. It is not difficult. However you must consult your tax prepare for assistance. And your chance of winning at least partially reducing an audit bill is excellent. Once you file a Petition in Tax Court, the IRS knows you mean business and will often compromise with you for less than the tax claimed due. Over 80% of Tax Court filed settles before trial! And even if the IRS does not settle before going to court, you have a good chance of having your tax liability reduced once you talk to a judge. More than 50% of all petitions filed in Tax Court bring some tax reduction. In cases under $10,000 (called small cases), 47% of all taxpayers win at least partial victories. Filing your Petition in Tax Court also buys time. Just filing will delay an audit bill for at least a year. You can use this time to get your finances in order without worrying that the tax collector will seize your assets. The drawbacks are interest, and sometimes penalties on taxes you owe, accrues until your case is finally concluded.

Q3 - I tried to convince my father to use your firm for his tax preparation. He refused because he had been using someone for the last 3 years. We made almost the same income but he always send money to the state what should I do? Bob Lefrak, PA.

A3 - Nothing! Taxes are based on several factors. Nevertheless, your father should not trust a Tax preparer who bases his/her fees on a percentage of the refund or payments. Someone who guarantees refunds in all cases or will not sign your tax return as the preparer. Someone who will not be available after April 15 of the tax year and is not an IRS E-file Provider. If the IRS caches a sleazy preparer, it casts out its audit net to bring in the repairer's clients.

Q4 - How can I avoid an audit from the IRS? Sheila Fatimah, Macon, GA.

A4 - The threat of being audited faces all taxpayers, whether they stick their necks out or not. However, there are some ways to effectively reduce your chances of being audited. (Certain factors trigger audits -for example, very large medical, charitable, interest, or miscellaneous deductions, excessive casualty & lost) and most significantly self-employed individuals. If you have unusual or questionable deductions in a year or just feel that you have deductions that might cause an audit, attach copies of proof of your claims for your return. Do not file your tax electronically (Just mail it along with all the receipts that you have). The agent seeing your substantiation might approve your return. Though the IRS discourages taxpayers from attaching such proof to their returns, it is a proven escape hatches for an audit.

Q5 - How long should I keep my receipts after filling my taxes? Madeleine Pierre, Brooklyn, NY

A5 - Most records have to be held for three years after the due date of your tax return. That's when the statute of limitations expires for tax audits by the IRS and refund claims by the taxpayer. Some records should be kept indefinitely especially those relating to the acquisition of property because if you ever sell the property, you can't determine profit or loss without proof of its original cost or other tax basis.

Q6 - Among all the tax cases that you won from the IRS can you give us one example? Kings berry Went, Rhode Island.

A6 - Two years ago, the IRS for claiming home office deductions audited a client. She owned and managed a Laundromat. Each day she spent an hour at the Laundromat and two hours in her home office, where she did necessary administrative work. The IRS agent denied her home office's deduction because the Laundromat, not her home, was her principal place of business. We appealed the case to The Courts of Appeals. Since She spent more time working at home than anywhere else. Thus, the home office was her principal place of business and deduction was allowed. The case would have been different for employees since the cost for using the home office must exceed 2% of Adjusted Gross Income.

Q7 - I have some legitimate medical bills that I paid off. My accountant failed to deduct them last year. Is it too late to report them? Paul Dibienzo, Hempstead, CT.

A7 - You still can. Just have your accountant file an amended return for both the Federal and the State (If applicable) and attach a copy of your deductions.

Q8 - For the last three years I have been receiving a series of threatening notices from the IRS to collect delinquent accounts. Recently, a revenue officer showed up at my door. I did not open the door. My neighbor told me when they come back again, they will seize my house with everything inside and I will go to jail. How can I approach the situation right now to enter into an installment agreement for payment of the outstanding debt? Abraham Williams, Queens, NY.

A8 - The IRS will always negotiate and listen. Just call them and make a settlement to pay on a monthly basis. Unless the reviewer choose to transfer your case to fraud unit.

Q9 - Last year, I spent $6,000 to remodel my basement in order to open a home based office. My accountant deducted it as office expense. I went for a tax audit; the Tax Reviewer rejected the credit. It is not fair even though I showed her all my receipts. Dr. Joachim Beats, Ft Lauderdale, Fl.

A9 - We are sorry to hear this unfortunate story. While the cost of repairing a building may qualify as a deductible business expense, the cost of remodeling and improving a property does not, it is a capital expenditure. The reviewer was right.

Q10 - When can I file Schedule C-EZ? EDC Construction Co., NY, NY.

A10 - You may use schedule C-EZ instead of Schedule C if you operated a business or practiced a profession as a sole proprietorship and you have the following: Had gross expenses of $2000 or less - Use the cash method of accounting - Did not have an inventory of any time during the year. Did not have a net loss for your business - had only one business as a sole proprietorship.