Auditor's Examination of a Business

When you are audited, the IRS examiner looks at more than your tax return. He or she compares you, the taxpayer, with the amounts reported on your tax return. If the audit is conducted in your office or home, the examiner will look all around at the surroundings to get a feel for whether the tax return reflects your life style. The auditor is looking for the "economic reality" of your situation.

Collection Financial Standards

In deciding whether or not an individual has the ability to pay his or her delinquent federal income tax liability for the purpose of either an offer in compromise or an installment payment plan, the Internal Revenue Service looks at certain collection financial standards. These standards include both national and local allowances for the necessities of life.

Standard v. Itemized Deductions

One important decision that the individual taxpayer has to make when preparing his or her federal income tax return is whether to itemize deductions or to take a standard deduction. The correct choice between separately listing and adding together individual items that are deductible under the Internal Revenue Code and taking a flat statutory amount to reduce the amount of income on which you are taxed can legally reduce a taxpayer's liability.

Credits for Gasoline and Special Fuels Excise Taxes

Certain taxpayers are entitled to a credit for federal excise taxes paid on gasoline and special fuels when the fuel has been used for farming purposes, for other off-highway business use, and for public transportation purposes. Generally, taxpayers may take the credit against income tax for the year in which the qualifying use occurred, not necessarily in the year of payment. In addition, if the tax credit will exceed $1000 for fuels used during any of the first three quarters of the tax year, a taxpayer is entitled to file a quarterly claim for refund for that quarter.

Nonbusiness Bad Debts

Nonbusiness bad debts are uncollectible obligations to you based on transactions not in the course of operating your trade or business. In order to prove that you are entitled to a bad debt deduction, you must be able to first show that you have a genuine debt. Second, you must be able to prove that a valid debtor-creditor relationship existed at the time the debt arose. Third, you must already have included the amount in your income. Finally, you must show that the debt became totally worthless during the tax year in which you are seeking the deduction.