On November 18, 2020, the Internal Revenue Service issued Revenue Ruling 2020-27 which provides needed clarity on a taxpayers’ ability to deduct eligible expenses for Paycheck Protection Program (PPP) loan forgiveness.
The Ruling notes that a taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.
What if forgiveness is denied, in whole or part, or not requested?
In conjunction with the Ruling, the IRS issued Revenue Procedure 2020-51 to outline the steps for when:
1.) The eligible expenses are paid or incurred during the taxpayer’s 2020 taxable year,
2.) The taxpayer receives a covered loan guaranteed under the PPP, which at the end of the taxpayer’s 2020 taxable year the taxpayer expects to be forgiven in a subsequent taxable year, and
3.) In a subsequent taxable year, the taxpayer’s request for forgiveness of the covered loan is denied, in whole or in part, or the taxpayer decides never to request forgiveness of the covered loan.
The Rev Procedure provides for two safe harbors for taxpayers in the event forgiveness is denied, in whole or in part, or otherwise not requested that would allow for the deduction of expenses in either the 2020 or a subsequent tax year.
Questions we still have
While the Ruling provides information on the deductibility of expenses and the tactical approach for borrowers whose forgiveness is denied or not requested, additional clarification is still needed. This guidance does not address the order in which the eligible expenses (payroll, rent, utilities and mortgage interest) lose the ability to be deducted.
Further, the guidance does not address other matters that could have significant tax implications including, but not limited to, the impact on the following:
- Qualified business income deduction (Section 199A)
- Research and development credits
- Interest deduction limitation (Section 163(j))
Need Assistance in Choosing the Right PPP Loan Forgiveness Application?
We have put together a flowchart that can help: How to Select the Right Loan Forgiveness Application
This year has been unique and beyond comparison in many ways, and tax planning is just one of the implications of current events. Both individual and business taxes have the potential to be significantly impacted by the various legislation that has passed like the FFCRA and the CARES Act, the loan programs made available like the PPP and the EIDL, and the unemployment/stimulus programs that touched many Americans.
It’s imperative that we take into account all these potential factors when implementing your tax plan for 2020. In this article, we’ll take a look at the main areas to consider, both common and pandemic-related, when planning for 2020 year-end taxes.
Common and pandemic-related tax planning items for businesses to consider in 2020
- Accelerate AMT refunds – The CARES Act has accelerated the alternative minimum tax following changes made by the Tax Cuts & Jobs Act. Corporations can claim all remaining credits in 2018 or 2019 thus allowing for filing of quick refunds.
- Use current losses for quick refunds – The CARES Act allows businesses to claim immediate refunds by using current losses against past income, for example.
- Submit a retroactive refund for bonus depreciation – Businesses can now deduct qualified improvements dating back to Jan. 1, 2018, thanks to a fix made by the CARES Act. This could offer a quick refund.
- Claim quick disaster loss refunds – Nearly every U.S. business is eligible for disaster-related refunds from losses in 2020 on an amended 2019 return for a quicker refund.
- Time out your payroll tax deduction – While the CARES Act allows employers to defer paying their share of Social Security taxes, you should review the best strategy with your accountant. In some cases, it’s better to pay on time to take a loss. In others, it provides a liquidity benefit.
- Maximize generous Section 179 deduction rules – For qualifying property placed in service in tax years beginning in 2020, the maximum Section 179 deduction is $1.04 million. The Section 179 deduction phase-out threshold amount is $2.59 million.
- Understand your PPP obligations – PPP loan forgiveness may be excluded from gross income, but how to treat expenses related to PPP loans is still in question. Does the taxability of these expenses come into play in 2020, or not until 2021 when a loan is forgiven? This can impact estimated tax payments and how to treat nondeductible expenses once a decision is made.
- Deduct EIDL grant expenses – EIDL grant funds are believed at this point to be considered taxable income but expenses related to this grant would be deductible.
- Claim any employment retention tax credits – These can be claimed now, but you cannot have a PPP loan and receive employment retention credits.
Common and pandemic-related tax planning items for individuals to consider in 2020
- Be mindful of long-term capital gain taxes from sales of assets as these could also impact the 3.8% tax on net investment income. If you didn’t make much income in 2020, consider harvesting some long-term gains, especially if you qualify for the 0% capital gains tax bracket (under $80,000 MFJ, $40,000 single filer).
- Postpone income and accelerate deductions – Check on the status of your current and projected income for 2020 and 2021 to see if you’ll be pushed into a higher tax bracket. Defer bonuses from employers if necessary, and if self-employed, postpone income by postponing billing. It may also be possible that accelerating income is the appropriate path for you to lock in lower tax rates.
- Convert traditional IRAs to Roth IRAs – Be mindful of the new distribution rules for IRA beneficiaries as well as the ability to continue to make IRA contributions after age 70½ if there is enough earned income at play.
- Bunch deductions if necessary/appropriate – Consider bunching charitable contributions (by using a donor advised fund or charitable lead trust) and medical deductions as there are certain thresholds only available for 2020. Thirty regularly expiring provisions are also coming with 2020 including tuition/fees deduction and mortgage insurance premium deduction among others.
- Make your year-end gifts as interest rates are low (expected to continue in 2021).
- Account for your stimulus payment – Stimulus payments are considered an advance on your 2020 tax credit, so you may see a smaller return next year.
- Pay taxes now on your unemployment income – Unemployment benefits are taxable on the federal level so ensure you’re taking these taxes out of your payments or saving to make a payment. Note that states have varying tax treatment of unemployment income.
- Consider taking gains and paying more in tax now if you’re in a good financial position – This is contrary to the usual advice, however given our current historically low rates and a large and accelerating national debt, higher tax rates seem inevitable. For example, paying a 20% LTCG tax now could be very advantageous for a high–income filer who might be stuck paying at their ordinary rates on capital gains in the future.
- Exercise non-qualified stock options – Biden has proposed not only a rate increase, but also a FICA increase on high income taxpayers. So, corporate executives might consider exercising the NQSOs now to avoid getting hit with higher rate and FICA in the future.
As mentioned in our previous article – Tax planning considerations: Election results, sunset provisions – changes to the tax code in the next two to four years may still be imminent depending on the finalizations of certain Senate elections. If those changes become a likely scenario, some adjustments may still be possible in this year’s tax plan to account for those potential tax code changes. Work with your CPA to have a plan for all scenarios.
According to news outlets, as of this writing, Joe Biden will be the president-elect of the U.S. following the Electoral College vote on Dec. 14. Vote counting is still ongoing and election results have not yet been certified, but this news may have some taxpayers wondering what changes, if any, they should make in their tax planning to close out an eventful tax year.
The likelihood of a major tax overhaul in the next two years is up in the air as the Senate is not yet decided and may not be until two Georgia run-off elections in January 2021. If Republicans retain the majority, it’s likely there won’t be many changes, but that doesn’t completely lock out any potential adjustments that could come in the next two to four years. Items of agreement on tax policy exist between both parties such as increasing the child tax credit. However, with provisions of the Tax Cuts and Jobs Act (TCJA) set to sunset in 2026, updates to the tax code will be on the horizon by the next election.
Additionally, if the Republican Party indeed holds onto a 51-vote majority in the Senate, it is not unreasonable to imagine a legislative vote in which 2 republican senators vote against the majority of the Republican party to push a tax legislation bill through to the President. Accordingly, between the possibility of a loss of Republican control in 2 to 4 years, the possibility of 2 Republicans voting for a tax reform bill, and the 2026 TCJA sunset, it is highly unlikely tax laws will become more favorable to taxpayers in the in future; thus, we believe there is an urgency to plan carefully and diligently in the last weeks of 2020.
In this article, we’ll examine the key points of the President-elect‘s tax plan, the sunsetting TCJA provisions, and what to keep in mind as you execute your tax plan to close out the year.
High-level overview of the President-elect Biden’s tax plan
President-elect Biden has laid out several of his tax plans the past year on the campaign trail. Here’s what we know based on what he’s shared.
- Increase the top tax rate on ordinary income for individuals with taxable income over $400,000 to 39.6%
- Tax long-term capital gains at ordinary income rates for those with taxable income over $1 million
- Cap the value of itemized deductions at 28% for those with incomes over $400,000
- Increase the child tax credit to $3,000 for children 6-17 years of age, and increase to $3,600 for children under age 6, make credit fully refundable
- Increase tax preferences for contributions to 401(k) plans and IRAs for middle-income taxpayers
- Replace deduction with a refundable tax credit for worker contributions to traditional IRAs and defined-contribution pensions
- Increase tax benefits for the purchase of long-term care insurance using retirement savings for older Americans
- Raise eligibility limits on health care premium tax credits and increase the amount of the credit
- Repeal the per-manufacturer cap on electric vehicle tax credits, make credit permanent, phase out credit for those with income above $250,000
- Reinstate solar investment credit and tax credits for energy efficiency in residences
- Phase out the qualified business income (QBI) deduction for those with income greater than $400,000
- Expand Social Security tax by increasing the maximum threshold from $137,000 to $400,000 over time
- Increase the corporate tax rate to 28%
- Add a 15% minimum tax on “book” income
- Offer tax credits to offset costs of workplace retirement plans for small businesses
- Establish a refundable tax credit for companies and nonprofits who provide full health benefits to all workers during a period of work hour reductions
- Eliminate certain tax subsidies for oil, gas, and coal production, enhance tax incentives for carbon capture use and storage, establish tax credits and subsidies for low-carbon manufacturing
- Expand tax deductions for commercial buildings with certain environmentally friendly investments
TCJA provisions to sunset in 2026
In addition to the President-elect’s plans, the TCJA is still in the spotlight. The TCJA was the most significant tax overhaul in decades when it was passed in 2017. However, as is the nature when dealing with budgetary constraints, many of the provisions of the TJCA are scheduled to sunset by 2026. Below we’ve highlighted a few of the anticipated changes.
For businesses, approximately $4 trillion is expected in new taxes over the next 10 years as provisions begin to sunset including changes to:
- Alternative Minimum Tax (AMT)
- Elimination or scale back of Section 199
- Capital gains
- Payroll taxes
- Bonus depreciation
For individuals, changes are coming for:
- Marginal tax rates for upper-income taxpayers
- Caps on itemized deductions
- Wealth taxes
- Childcare/family caregiving
- Renter’s credits/first-time homeowner credit
Considerations for 2020 year-end tax planning
It’s important to note that the above considerations are not an exhaustive list of tax items to review as we close 2020. Work with us to have a proactive plan in place that takes into account various potential scenarios that could manifest in the coming weeks and months. In our follow-up article – 2020 tax planning considerations for businesses, individuals – we’ve laid out some of the key provisions to take into account as you work with us on your end–of–year tax planning.
Employers can now defer payroll tax withholding on employee compensation for the last four months of 2020 and then withhold the deferred amounts in the first four months of 2021, confirms a recent update from the IRS. President Trump’s memorandum on Aug. 8 gave employers the ability to defer payroll taxes for employees affected by the COVID-19 pandemic in an effort to provide financial relief.
The guidance directs that employers can defer the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3102(a) and Railroad Retirement Act Tier 1 under Sec. 3201 from employee wages from Sept. 1 to Dec. 31, 2020.
Employers must then withhold and pay the deferred taxes from wages and compensation during the period from Jan. 1, 2021, and April 30, 2021, with interest, penalties, and additions to tax to begin accruing starting May 1, 2021. Included in the notice is a line that indicates, if necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee,” such as if an employee leaves the company before the end of April 2021, but does not provide details on what that entails.
Employees with pretax wages or compensation during any biweekly pay period totally less than $4,000 qualify for the deferral. Amounts normally excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included in calculating the applicable wages. The determination of applicable wages should be made on a period-by-period basis.
Companies may choose whether or not to enact the payroll tax deferral. We are closely monitoring updates related this and other presidential executive orders and will communicate if more information becomes available. For questions or assistance with this payroll tax deferral, contact us.
On Aug. 24, the Small Business Administration (SBA) and Treasury issued the latest interim final rule update to the Paycheck Protection Program (PPP) that seeks to clarify guidance related to owner-employee compensation and non-payroll costs. This guidance has been long-awaited and clears up several questions borrowers have had about forgiveness. Here are the main points:
1. Owner-employees of C or S corporations are exempt from the PPP owner-employee compensation rule for loan forgiveness if they have a less than 5% stake in the business. The intent is to provide forgiveness for compensation of owner-employees who do not have a considerable or meaningful ability to influence decisions over loan allocations. This clarifies earlier guidance that capped the owner-employee compensation regardless of what stake they have in the business.
2. Loan forgiveness for non-payroll costs may not include amounts attributable to the business operation of a tenant or subtenant of the PPP borrower. The SBA provides a few examples of what this means:
- Borrowers renting an office building and subletting a portion to another business can only claim the difference between their rental cost and the sublet income.
- Borrowers with a mortgage on the building in which it operates who lease a portion of the building to another business can only claim a portion of the mortgage interest limited to the percent share of fair market value of the space not leased.
- Borrowers sharing rented space with another business must prorate rent and utility payments like they would for 2019 tax filings or, if new, expected 2020 tax filings.
- Borrowers working from home may only claim the share of covered expenses deductible on the 2019 tax filings or, if new, expected 2020 tax filings.
3. To achieve loan forgiveness on rent or lease payments to a related third–party, borrowers must ensure that (1) the amount of loan forgiveness requested does not exceed the amount of mortgage interest owed on the property attributable to the business’s rented space during the covered period, and (2) the lease and mortgage meet the Feb. 15, 2020, requirement for establishment. Earlier guidance had not addressed related third-party leases.
It’s important to note that mortgage interest payments to a related party are not eligible for forgiveness as PPP loans are not intended to cover payments to a business’s owner because of how the business is structured – they are intended to help businesses cover non-payroll costs owed to third parties.
For questions on any of these rules or assistance with your PPP loan forgiveness application, contact us today.
On August 8, 2020, President Trump signed an executive order extending certain aspects of COVID-19 relief in the absence of a new bill from Congress. The executive order includes several measures to protect individuals as provisions of the CARES Act expire or have expired.
Here’s what was in the order:
Payroll tax delay – The order authorizes the Treasury to consider methods to defer the employee share of Social Security taxes (IRC section 3101(a) and Railroad Retirement Act taxes under section 3201(a)) for employees earning up to $104,000 per year ($4,000 biweekly) for a period beginning Sept. 1, 2020, through Dec. 31, 2020. No interest, penalty, or additional assessment would be charged on the deferred amount. At this point, this is not effective. It means the Treasury can exercise authority and explore ways to achieve forgiveness on the deferred amounts, such as legislation. While nothing will be done until the Treasury issues guidance, employers will need to be mindful of this as the liability of this payment could fall on them depending on the final rule.
Unemployment benefits – The $600 per week unemployment benefit authorized by the CARES Act expired on July 31. The executive order retroactively authorizes $400 per week from Aug. 1; however, states must contribute $100 and the remaining $300 would come from the federal government. The funding for the federal portion would come from the FEMA Disaster Relief Funds and would continue until the earlier of Dec. 6, 2020, or a drop in the Fund balance to below $25 billion. The state portion is to come from federal funds already distributed to the states. Questions of whether the FEMA funds can be used for this purpose are still outstanding.
Evictions – The evictions portion of the executive order asks the secretary of HHS and director of CDC to consider whether halting residential evictions is reasonably necessary to help prevent further spread of COVID-19 and also authorizes the Treasury Secretary and HUD Secretary to consider potential financial assistance for renters. The CARES Act banned evictions through July 25 for properties with federal mortgage programs or HUD funds.
Student loans – The student loan interest deferral enacted by the CARES Act is set to expire Sept. 30, 2020. The executive order would waive student loan interest until Dec. 31, 2020, for loans held by the Department of Education only.
Final guidance is required from the respective agencies before some of these measures can be enacted. Contact us with questions.
The Small Business Administration (SBA) and Treasury released an updated Paycheck Protection Program (PPP) FAQ on Aug. 4 in an effort to address PPP loan forgiveness issues that have arisen as borrowers begin to complete their applications. The 23 FAQs address various aspects of PPP forgiveness including general loan forgiveness, payroll costs, non-payroll costs, and loan forgiveness reductions. Here is a brief overview of some of the most notable clarified guidance.
General loan forgiveness
- Sole proprietors, independent contractors, and self-employed individuals with no employees and no employee salaries included in average monthly payroll at the time of PPP loan application should use PPP Loan Forgiveness Application Form 3508EZ.
- Borrowers who submit their loan forgiveness application within 10 months of the completion of the covered period do not need to make payments until the forgiveness amount is remitted to the lender by the SBA.
- Borrowers who must repay a portion of the loan should know interest is accrued from the time of disbursement and the SBA remittance of the forgiveness amount. Borrowers whose full loan is forgiven do not need to pay the accrued interest.
Payroll costs forgiveness
- Owner-employee is defined as someone who is both an owner and an employee of a C corporation. This was not previously defined.
- Compensation limitation for owners is cumulative across all businesses if there are multiple.
- S corporation considerations
- Health insurance costs do not qualify as compensation for S corporation employees that own at least 2% of the business nor for family members of such employees.
- S corporation owner-employees with less than 2% ownership can count health insurance costs.
- Unemployment and state income taxes are eligible for forgiveness.
- Employer retirement contributions are eligible capped at 20.833% of 2019 contributions.
- C corporation considerations
- Forgiveness is allowed for employee shareholder compensation including state unemployment and income taxes and corporate contributions to employee health insurance.
- Employer retirement contributions are eligible capped at 20.833% of 2019 contributions.
- Employer contributions for retirement and group health benefits that were accelerated from periods outside of the covered period or alternative covered period are not eligible for forgiveness.
Non-payroll costs forgiveness
- Payments of transportation utility fees assessed by state and local governments are eligible for forgiveness.
- The alternative payroll covered period does not apply to non-payroll costs.
- Leases that existed prior to Feb. 15, 2020, but expired or renewed during the covered period are eligible for forgiveness.
- Interest payments on mortgage loans for real or personal property that existed prior to Feb. 15, 2020, but were refinanced during the covered period are eligible for forgiveness.
- Benefits are not to be included in the determination for a 25% reduction in employees’ hourly or salary wages.
- It is still unclear whether tips for restaurant employees are included, so restaurant owners may want to make up for lost tips to avoid the reduction.
- Borrowers should include employees who made more than $100,000 in 2019 when calculating FTE reduction exceptions.
The FAQ document also includes several examples for making calculations related to the above questions. Contact us for questions and assistance with your PPP loan forgiveness application.
When the Tax Cut and Jobs Act went into effect in January 2018, many taxpayers stopped itemizing their returns. The reality, however, is that unique tax situations require a unique approach, and there may be some room for improvement in yours. Now that 2020 is in full focus, it is a great time to look at your giving strategy. If you are not sure you made the most of your charitable deductions in 2019, consider these incentives when setting your charitable contribution plan in 2020.
Although taxpayers that fall just below the standard threshold no longer need to itemize, those who hover around a higher tax bracket or well-exceed the standard deduction threshold should consider their situation with a professional to determine if they could benefit from a better plan. Consider the following incentives,
- Tax Reform removed the Pease limitation for itemized
deductions and increased the amount of cash that can be contributed to public
charities from 50% to 60% of adjusted gross income (AGI). For the tax years January
1, 2018, through December 31, 2025, taxpayers can claim 100% of their allowable
- Taxpayers whose income falls short of the
standard deduction threshold one year but exceeds it in other years could
consider a bunching strategy. This allows those who fall below the deduction
threshold to maximize the tax benefits of giving every other or every third
- Donor-Advised Funds (DAF) are another excellent
way for taxpayers to claim a larger deduction. It works like this; the itemized
donor gives an initial, more substantial gift to a donor-advised fund and
receives the allowable tax deduction. The contribution grows tax-free and
serves as a charitable fund from which the taxpayer can recommend gifts to
charity in subsequent years. These recommendations do not qualify as additional
deductions, leaving the taxpayer to take the standard deduction in those years.
- Under the new tax law, donors can still take an
income tax deduction on the full fair market value of appreciated assets they
gift to charity. This scenario is a win-win for taxpayers and charities.
- Taxpayers 70.5 years of age and older can
request a distribution of up to $100,000 per year directly from their IRAs to
charity. This gift helps satisfy annual required distributions and is removed from the
donor’s taxable income.
Deciding which charity to support in 2020?
The key to making your donations count is ensuring the organization you choose is an eligible charity. The Tax-Exempt Organization Search engine and the Interactive Tax Assistant on IRS.gov can help you choose organizations eligible to receive tax-deductible charitable contributions.
If you’re worried that making a large gift this year will harm your estate after 2025, you can rest assured. In November 2019, the Treasury Department and IRS issued final regulations confirming that taxpayers who make significant contributions between 2018 and 2025 can take advantage of the increased gift and estate tax exclusion amounts without concern over losing the benefit in 2026 and beyond.
The professionals in our office are well-versed in charitable contribution strategies, call us today to discuss how to make sure your donations count in 2020.
Catch Kim Spinardi, CPA, Michael Frost, and Ralph Nelson, JD, CPA discussing the new tax laws and how working with one firm that can handle your tax, financial planning and investing needs may be your greatest asset.
To watch, click here!
Hamilton Tharp, LLP is proud to have been asked to be a part of this discussion on Real Talk San Diego’s “Your Wealth Hour” segment!
Tax audit. These two simple words are enough to strike fear and loathing into the hearts of many business owners. But, in reality, the Internal Revenue Service (IRS) won’t arbitrarily make your company the subject of an audit investigation. In fact, according to IRS.gov, out of the 196 million returns filed in 2016, only 1.1 million (0.5%) came under examination in 2017. You are more likely to be summoned for jury duty (1 in 10) this year.
Unless you’re operating below
the board or completely ignoring best practices, you have little to fear.
However, even the most prudent sometimes miss a step. From managing the filing
cabinet to the people who hold the keys, ensuring your business doesn’t catch
unnecessary attention from the government comes down to good habits. Here are a
few ways you can minimize the likelihood that you’ll be audited or ensure a
more positive experience should you be audited.
- Handle audit triggers with care. The IRS has an accrual system when it comes to audit points. If you take deductions or file taxes as an independent contractor, you are at an increased risk for an audit.
- Home office deduction: Under the new tax law, employees who work from home are no longer able to take itemized deductions. However, if you are self-employed, you can still claim the home office deduction on your Schedule C. Be sure to follow IRS guidelines when claiming this deduction.
- Charitable deduction: Lost your receipt for the dresser you donated last spring? You might want to reconsider claiming it as a charitable deduction. New rules require taxpayers to retain records for donated property with a value of $250 or more. For 2019, consider taking pictures of everything you donate to document the condition to prove its condition and value.
- Mileage deduction: This is a hotly contested area within the tax community. Many people take advantage of this deduction but a high percentage abuse the system, making this area a top audit trigger. Thankfully, leveraging technology can help. You can easily document mileage using GPS history to support your mileage claims.
- 1099 Income: If you have more than two clients, the IRS might focus in on your business. The key to ensuring your 1099 income doesn’t trigger an audit is to keep your records both complete and compartmentalized, meaning, don’t intermingle bank accounts.
- Schedule Cs: The IRS will throw up a red flag if a profitable gig worker doesn’t file a Schedule C. If you are self-employed and are making a profit, you should be filing a Schedule C. Conversely, the IRS will also discriminate against losses claimed on a Schedule C from businesses that are actually considered a hobby.
best practices. When it
comes to filing your small business tax return, several items might cause
scrutiny. Here are some ways you can avoid a second glance from an IRS
proprietors take more heat than LLCs. Registering as an LLC or corporate entity
not only gives you more credibility, it also reduces your risk for audit and increases
tax saving opportunities.
your tax returns the respect they require. Cross every t, dot every i, check it
twice, and file on time. Be sure to report all the information required –
incomplete tax returns, along with unreported income, is a surefire way to
invite an audit. If you know you will not be able to file on time, request the
extension. It is much better to anticipate the inevitable than incur avoidable
attention (and fees!).
your business losses. Failing to classify business losses correctly could force
the IRS’s hand. The best way to file losses is under the umbrella of a formal
business entity like an LLC or corporation. In addition, while start-ups often
experience fits and starts, if your business cannot show three years of
profitability within a five-year window, the IRS will claim your net losses
have outweighed your profits and will move to audit.
If the IRS contacts you about an audit, CPAs advise that you don’t panic. Remember, you are not going on trial, you’re simply being asked to verify some of the claims you made on your tax return. It’s best to remain calm and cooperative when dealing with the IRS.
It’s also a good idea to contact your local CPA for advice and assistance in case you are audited. He or she can help you understand the process and work with you to try to achieve the best resolution.