What to Do When You’ve Been Audited

What to Do When You’ve Been Audited


As millions of Americans file taxes yearly, many get responses from the IRS. Of those responses, very few contain an audit letter from the IRS. In case an audit letter comes your way, San Diego CPAs recommend the following course of action.


Begin by taking a deep breath and read the IRS’s letter. Most letters require extra paperwork for clarification, and those letters are not audit letters. Respond to the IRS promptly. If it is an audit letter, determine what tax return section is triggering the audit letter. Next, review that section to ensure everything is correct. Then read it again to ensure it is from this year’s taxes.


This next part is critical. The IRS has three years to audit tax returns. In other words, the letter may point to tax returns from three years prior. Tax filers must record and keep track of these tax returns up to three years for this reason. After reading the letter thoroughly, gather the necessary paperwork supporting the tax return section in the selected year only. Supplementary, yet unnecessary information turns the speedy audit process into a time-consuming investigation.


During the paperwork gathering process, include W-2s and/or 1099s as supporting evidence. Include receipts, check stubs, mileage logs, and company paperwork related to the tax section. Ask third-party companies and people related to the audit in question to vouch for you, as these are other accepted forms of documentation. Some audits require additional forms filled out and returned by a deadline while other audits occur face to face.


The one thing tax filers do that gets them in trouble is ignoring the letter. The IRS is not going away until tax filers answer the letter and complete the task. After all, audits aren’t problematic; the IRS just wants to ensure the information is correct. The audit is a fast, smooth process. Respond promptly, remain respectful and be courteous throughout the process.


Should the IRS find a discrepancy in your taxes and you need to appeal the IRS decision, contact R.A. Michael and Associates at (844) 780-1100 today. We can help you file your taxes correctly to avoid any issues with the IRS.

Tax-Exempt Businesses

Tax-Exempt Businesses


Many people wonder why certain organizations don’t have to pay taxes. In this article, R.A. Michael and Associates will explain what it takes to classify a business or organization as tax exempt.


The Internal Revenue Service (IRS) classifies charitable organizations as tax-exempt by the designation 501(c)(3), which falls under the Internal Revenue Code 26. This classification applies to churches, religious and educational organizations and private foundations or organizations that support the welfare of humans and animals.


Examples of tax-exempt organizations include: school or community-based organizations such as parent-teacher groups or Girl Scouts, intramural sports clubs, organizations such as booster clubs, organizations that raise awareness on conditions that affect humans and animals such as animal rescues or cancer awareness groups.


Charitable organizations except for those considered for the benefit of public safety are allowed to receive donations to support the mission of the organization. These donations can be used to create grants or special programs. After the organization has received donations, a notice or receipt must be given to the donors so that the donors are aware of the tax-exempt status of the organization.


These organizations are often referred to as “non-profits” because income generated or donations received are not to be used for providing financial support to individuals. All income and donations incurred are to be used as support to carry out the mission of the charitable organizations.


Additionally, tax-exempt organizations are not subjected to paying high federal income taxes. However, the charitable organizations must operate under these specific conditions in order to maintain tax-exempt status. These conditions are as follows:

-Income generated by the charitable organizations cannot provide financial support for private individuals or members who are affiliated with organizational operations.

-Charitable organizations cannot influence decisions that affect political affiliations or organizations, which can be referred to as lobbying. The organizations are not allowed to give donations to individuals who are seeking donations for political campaigns.


To learn more about tax exemption status, liens and appeals, contact R.A. Michael and Associates at (844) 780-1100 today. We are expert tax practitioners in San Diego that will help you file your taxes correctly and avoid any issues with the IRS.

Are You a Candidate for Bankruptcy?

Are You a Candidate for Bankruptcy?


The word bankruptcy has negative connotations for most people. You may think that you will never be able to purchase a home or a car, or that others will think that you are shirking your financial responsibilities. In fact, bankruptcy can be a viable alternative if you find that your debts exceed your liquid assets and you’re in over your head with IRS collections.

Questions to Consider

To determine if you are in a financial danger zone, ask yourself the following questions.

  • Am I constantly getting calls from bill collectors?
  • Am I overwhelmed by finances that are out of control?
  • Am I using my credit card to pay for necessities?
  • Am I only paying the minimum on my credit cards?
  • Am I unsure how much debt I actually owe?
  • Have I thought about debt consolidation?

Answering yes to two or more of the above questions indicates that you are on the edge of a financial cliff and need to look at all of your options. Some of the most common reasons for filing bankruptcy include divorce, excessive credit card debt, unexpected medical expenses, unemployment, and delinquent employment tax.

Types of Bankruptcy

The most common form of bankruptcy is called Chapter 7. In this type of bankruptcy, all of your personal assets are sold to third parties with the money being used to pay off your creditors. This can mean selling your home, business, vehicle and other personal items of significant monetary value, which is why this type of bankruptcy may not be the best option for everyone.

A Chapter 13 bankruptcy allows you to pay off your debts over a period of several years. Any remaining debts are discharged at the end of the grace period. This type of bankruptcy stops collection attempts and allows you to keep your personal property.

An attorney or CPA in San Diego can help you analyze your financial situation to determine if bankruptcy may be the right option for you. Contact R.A. Michael and Associates at (844) 780-1100 today to learn how we can help you avoid bankruptcy and evaluate your tax options.

When Should You Start Paying Taxes

When Should You Start Paying Taxes


Benjamin Franklin once said, “There are two things certain in life, death and taxes.” At some point in your life, you will be required to start paying taxes, so it is important to know when that times come so you can complete a tax return.

Completing a tax return can be an overwhelming experience, so it is important to know the laws and requirements of completing taxes. Not every individual is required to fill out a tax return. It will depend on your age and how much money you have made within that year. If another individual can claim you on their tax return, they must include you if you made more than $5950. If you are self-employed, you must file taxes if you earned more than $400. 

If no one else can claim you on their tax return at the end of the year, you are required to pay taxes if you are single and make more than $9750 annually. If you are married and filing separately, you need to file if you made more than $3800 last year. If you are married and filing jointly, you must file if you individually made $20, 650 or if you and your spouse made $21,800 together. You are not permitted to use your spouse as a dependent.

If you have any questions regarding whether or not you are required to file a tax return, it is important to seek the help of a tax professional in San Diego. No two situations are the same, and a certified professional can help you decide if your financial circumstances require that you file taxes. If you decide you will not be required to prepare a tax return, you might still want to research the laws in California for when you are finally required file taxes.


To learn more about when to file your taxes, reach out to R.A. Michael & Associates. We are the leading provider of tax consultation services in San Diego and we’ve been helping taxpayers since 1987. Call (844) 780-1100 today to schedule a free consultation.

Theft Victims Are Entitled to Certain Tax Deductions

Theft Victims Are Entitled to Certain Tax Deductions


When someone has been the victim of theft, they usually experience a range of emotions, including shock, betrayal, and anger. Depending on the nature of the crime, the victim may have to spend long hours working with law enforcement, insurers, and appraisers in hopes of receiving compensation for their loss. 


When theft victims are unable to recover their property or its value, it may be possible to claim these losses as tax deductions. While the deduction can never compensate for the sense of violation that crime victims feel, nor will it replace an item of sentimental value, the tax benefit can offer some much-needed relief.


The tax code places some restrictions on claiming such losses as a tax deduction. These include:

No Prospect of Recovery

Victims must take “reasonable steps” to get their property back. The deduction can be taken when a thorough review of the case facts and circumstances show there is no real prospect for recovering the stolen items.

Timely Claim Filing

Victims must deduct losses in the year of the theft or the year when the victim becomes reasonably certain that the funds or property won’t be recovered.

Credible Evidence

Victims must be able to provide documentation of the financial loss. This could mean receipts from the purchase of the stolen item, documentation of losses caused by investment fraud, or a credible appraisal.

Deduction of Actual Loss

A victim cannot deduct the full value of the loss if the victim has already received some form of compensation, such as through an insurance claim.

Because tax deductions are a complicated issue, individuals seeking to deduct a theft loss from their taxes may wish to consult with a tax professional in San Diego. Doing so can help ensure that the deduction is proper and will not raise any red flags with the IRS.


For help during tax time or to find representation when facing IRS appeals court, reach out to R.A. Michael and Associates. We’ve been helping taxpayers resolve IRS issues since 1987 and can help you too. Call (844) 780-1100 today and schedule your free consultation.

Your Rights as a Taxpayer

Your Rights as a Taxpayer


The IRS adopted a Taxpayer Bill of Rights so that taxpayers are aware of their rights when dealing with the IRS. IRS employees must follow proper conduct when dealing with taxpayers or their representatives, and you should not be subject to inappropriate questioning or requests in the event you are audited or receive an examination notice. Your sensitive tax, financial, and identity information is meant to be kept safe as well.

In summary, here are the rights guaranteed to you, the taxpayer, through the Taxpayer Bill of Rights:

1. You have a right to be told what you must do to comply with federal tax laws.

2. IRS employees must be comprehensible as well as professional and courteous when dealing with your tax matters, and you have the right to file a complaint about improper conduct.

3. You have the right to pay no more taxes than what you legally owe.

4. You have the right to raise objections to IRS actions and written correspondence, and appeal IRS decisions made regarding your taxes.

5. The IRS must make you aware of the maximum amount of time allotted to challenge them as well as the maximum amount of time there is to audit a particular tax year. They must also notify you when your audit is complete.

6. All IRS inquiries are subject to due process and shall only be as intrusive as necessary, ensuring your privacy.

7. You have the right to refuse the IRS the ability to disclose any information about you unless you consent or they are required to by law.

8. You have the right to retain authorized representation such as a CPA, Enrolled Agent, or tax attorney. If you cannot afford representation, you are permitted to use a Low-Income Taxpayer Clinic.

9. You have the right to receive assistance from the Taxpayer Advocate Service if you are under financial hardship or if the IRS is not resolving your tax issues in a prompt manner.


Learn more about your rights or find the help you need to resolve IRS issues like unpaid employment taxes by reaching out to R.A. Michael and Associates at (844) 780-1100. Your first consultation is always free.

How Many Allowances Should I Claim on My W4?

How Many Allowances Should I Claim on My W4?


When individuals start a new job, their employer asks them to complete a W-4 form for the IRS. On this Employee’s Withholding Allowance Certificate, workers indicate the number of allowances they’re claiming. According to CPAs in San Diego, that number determines how much money is withheld from paychecks for federal income tax purposes. 


The three most common factors affecting allowances are number of jobs held, number of dependents, and filing status. When more allowances are claimed, less money is withheld from paychecks and the greater the likelihood the employee will have to pay additional taxes come tax time. 


Fewer claimed allowances mean that more money is withheld from paychecks. There’s a greater likelihood of a refund. Accuracy is important because employees who fill out their W-4 incorrectly, resulting in insufficient withholding, are subject to penalties. 

Claiming 0 or 1

Employees who are claimed by someone else, enter 0 as the number of allowances. Single employees with one job can claim one allowance or two. Claiming two may result in owing taxes. A single individual with two jobs can claim one exemption on each job or both exemptions on one job, usually the higher-paying one.

Claiming 2 or More

Married couples filing jointly can claim two allowances and fill out one W-4 if they’re both employed. Each spouse in a couple that files separately completes a W-4. Married couples with one child can claim three allowances. Couples with two children can claim four and so forth.

Additional Allowances

Additional allowances are available for employees filng as head of household and for people who will claim expenses for childcare.

The W-4 includes worksheets so all taxpayers can make estimations based on their exemptions, credits, and other factors. These private worksheets are for the employees’ eyes only.


Incorrectly filing your taxes puts you at risk for penalties. If you need help when it comes time to file or you are seeking IRS collections relief, call R.A. Michael and Associates at (844) 780-1100. We can help you not only file your taxes correctly, but resolve any challenging issues with the IRS. Schedule a free consultation today.

What Is the 941 Employment Tax Form

What Is the 941 Employment Tax Form


Business owners who hire employees will need to submit the 941 employment tax form once a quarter. The form tells the IRS how many employees your company has and how much you have paid them in wages. This is also the form where you report how much has been paid in employment taxes.

Who Should File This Form?

Your business may be required to file this form if it has employees whether they are related to you or not. However, a company may be exempt from this rule if it doesn’t pay seasonal wages for one quarter of the year or it employs household, seasonal, or farm workers. 

Reporting Taxes Paid on Form 941

On Form 941 you will report how much has been paid in social security taxes, Medicare, and federal income taxes. You will also report how much has been paid in unemployment insurance taxes. Unemployment insurance taxes are paid by the employer only. 

Make Sure to Double-Check Your Calculations

One of the most common mistakes on Form 941 is a miscalculation of taxes paid. This could cause your company to pay more or less than it actually owes to the IRS. If a company underpays, it may be subject to fines and other penalties that may harm your company’s bottom line. The IRS may also impose fines if the form is not submitted by the deadline each quarter. 


If you have any questions about Form 941 or any other tax forms your business needs to fill out, it may be best to seek help from the IRS or a CPA in San Diego before submitting it. That may increase the odds that your return is accurate and won’t draw further scrutiny from the IRS. 


To learn more or find the help you need, reach out to R.A. Michael and Associates by calling (844) 780-1100 today. We specialize in Trust Fund Recovery Penalty relief, IRS appeals, and lien relief. Call today and schedule a free consultation.

Are My Campaign Contributions Tax Deductible?

Are My Campaign Contributions Tax Deductible?


If you consider yourself a politically motivated individual, it may very well have crossed your mind to contribute to a particular political candidate or party. You may have been motivated to do so following a candidate’s stand on a certain issue, or because you are worried about the general direction the country is moving in and wish to register your strong disapproval. You may also have reasons of a different kind for donating to a particular party or cause, such as doing so in order to obtain a tax break. If so, you may well be wondering if you can declare a political contribution as a deduction.


Unfortunately, according to San Diego CPAs, the answer is no. In order for a donation to be tax deductible, the organization that you designate your contribution for must have a 501c3 status, courtesy of the IRS. In other words, it must be a fully nonprofit organization. Political organizations simply don’t count as nonprofits for obvious reasons. Furthermore, you should know that one of the cardinal rules for a nonprofit organization to attain to that status is that they are absolutely prohibited from participation in political activities, including giving aid or assistance of any kind to a particular candidate.


Does this mean that it’s a bad idea to donate to the political party or candidate of your choice? Of course not. You can make a contribution of anywhere from $1 to the maximum amount of $2,500 allowable to a private individual. The main goal of contributing to a political cause is to support the candidate you feel best represents your wants, needs, and beliefs. If you truly believe in a particular individual or cause, it’s never a bad idea to put your money where your mouth is.


If you have additional questions about what is and isn’t tax deductible, feel free to reach out to R.A. Michael and Associates. We can help you file all your taxes on time and correctly so you avoid costly and embarrassing tax issues like IRS tax liens and collections. Give us a call today at (844) 780-1100. We’re here to help!

How Closing a Business Impacts Your Taxes

How Closing a Business Impacts Your Taxes


If you own your own business, at some point you may need to close up shop permanently. When this happens, you can’t just skip over areas that relate to the IRS regarding your taxes. There are several procedures you must follow with the IRS, depending on the type of business you have, when you decide to close your doors.

Sole Proprietorship

Many business owners are sole proprietors, and they do not employ anybody else under them. A sole proprietorship is the easiest business to close. If you have a sole proprietorship, all you have to do is file your Schedule C form as usual and let the IRS know that this is the last Schedule C they’ll be receiving from you. 

Having Business Assets

If you owned assets that were part of your business, then you’ll need to tell the IRS about these assets and the sale of these assets. You’ll also need to give the IRS information about these assets including the purchase price, date put into service, and any depreciation of the assets. This information is used to determine the market value of the asset. When the value is determined, you will know if you have a taxable gain or loss affecting your liability. 

Companies with Employees

If you have employees in your company, you’re going to need to file your federal payroll tax for the last quarter the company was in operation first. Next, you’ll need to pay your quarterly taxes and notify the IRS that this will be the last form from you. Any retirement plans that you’ve had for your employees will need to be dealt with yourself by notifying the appropriate people that you’ll be stopping contributions.

Necessary Tax Forms

For sole proprietors, a Schedule C form is sufficient to close your business. If you have assets, you’ll need to file those individually with Form 8594 along with a Schedule C. Businesses with employees need to send out W-2 forms to all employees and file a Form 941 along with a Schedule C. If your payroll deposits are less than $1,000 dollars, you’ll need to file a Form 944.


If you’re closing a business and need help fulfilling any final tax obligations or filing the correct paperwork, don’t hesitate to make an appointment with R.A. Michael and Associates. We have been in business for over two decades and offer free consultations. Give us a call at (844) 780-1100 today.