As I’ve pointed out for decades, the higher the adjusted gross income on your 1040, the more likely IRS will be to hassle you.  This is in addition to the fact that our rulers also have you in their cross-hairs by phasing out deductions, exemptions and credits for those they consider to be evil rich, as defined by high AGI. 

IRS Audits Increase By 21 Percent

IRS also says the number of audits of high-income taxpayers – defined as those with income of  $100,000 or more – reached 219,208, the highest figure in 10 years.

2005 IRS Data Book Details Rise in Audits – From IRS, reminding us all that Big Brother is watching us more closely than ever.

What to do about this? 

You can utilize income smoothing techniques, such as with C corporations, in order to keep your 1040’s AGI from reaching into the higher profile levels.   

You should make sure your books are in good shape and can support everything shown on your tax returns.  The best way to to do this is to have all of your records entered properly into QuickBooks.  Audits I have handled where the clients had their stuff in QB were completed very quickly and successfully.  Those for shoe-box clients drag on for years, costing huge amounts in fees and ultimately taxes. 

Work with a qualified tax professional. It is too dangerous to swim in the IRS shark infested waters alone. 

You also have the option to do nothing special to protect yourself from IRS hassles.  Some refer to that as the “ostrich” or “it can’t happen to me” approach.  These are often the same people whose retirement planning consists of buying lottery tickets.

 

Q:

Subject: Corporate Tax Rate Schedule

Hey Kerry,

I’m a student at Binghamton University and I’m trying to understand you’re tax rate schedule after looking at the 1120-W form.  What I’m having trouble with is how the rate resets at 335,000 and 18,333,334. 

The first makes sense, but I do not understand either the $550,000 at the second to last bracket, or the reset rate for all income over $18,333,334.

Thanks for any help,

Oh, and I’m doing this for a simulated 2% reduction in the corporate tax rate, just to let you know what I’m trying to do.

A:

This is a good time to repeat my long standing policy on not answering homework questions.  This has always been my online policy, going back several years ago when I was answering questions on the old AskMe.com website. 

I barely have time to address real life questions from many people; much less provide short-cuts for students who should be doing their own research and utilizing the resources they are paying for with their tuition. 

The answers to your questions are very easy if you work through the figures in the tax rate schedules.  If you can’t figure it out on your own, you should ask your professor or his/her teaching assistant to explain it to you.  That’s what they are there for.

Good luck.

Kerry Kerstetter