Updated: Aug 19
Next, I present to you the five topics we will cover in this edition:
Create a passive income system and live the life you want
Defer Your Taxes and Achieve a Dream Retirement: IRA Plans
Super Sick! Why Do I Keep Waking Up at 4 a.m.?
What You Need to Know About Improper Claims to the Employee Retention Credit
How to Effectively Prepare for an IRS Tax Audit: Tips and Best Practices
1 - Create a passive income system and live the life you want
Would you like to achieve financial freedom in 10 years or less? Can you imagine being able to live the life you want without depending on a job or a salary? Do you want to create a passive income system that allows you to generate money while you sleep, travel or enjoy your family? If your answer is yes, then keep reading.
What is financial freedom?
Financial freedom is the state in which your passive income exceeds your expenses, that is, the point at which you do not need to work to cover your basic needs and your desires. It is the moment when you can choose what to do with your time, with your money and with your life.
Financial freedom does not mean having an unlimited amount of money, but having control over your money and over your destiny. It is not about how much you earn, but about how much you spend and how much you save and invest.
Why is financial freedom important?
Financial freedom is important because it allows you to live according to your values, your dreams and your purposes. It allows you to be the owner of your time and your decisions. It allows you to create a positive impact on the world and on the people who matter to you.
Financial freedom also gives you security, peace of mind and confidence. It protects you from economic crises, unforeseen events and emergencies. It gives you the opportunity to grow personally and professionally, to learn new skills and to explore new opportunities.
Financial freedom is, in short, the key to a full, happy and successful life.
How do you achieve financial freedom?
Financial freedom is achieved by creating a passive income system that generates money for you constantly and automatically, without having to be present or directly involved.
Passive income is income that comes from sources that do not require your attention or your active work, such as:
Investments in stocks, mutual funds, bonds, cryptocurrencies, etc.
Real estate, rentals, reverse mortgages, etc.
Online businesses, ecommerce, infoproducts, affiliates, etc.
Intellectual property, books, courses, patents, licenses, etc.
Others: royalties, dividends, interest, pensions, etc.
What benefits does creating a passive income system have?
Creating a passive income system has multiple benefits for you and your business, as it allows you to:
Generate more money with less effort and time
Diversify your income sources and reduce risk
Leverage the power of compound interest and leverage
Optimize your taxation and pay less taxes
Reinvest your profits and accelerate your growth
Delegate, automate and scale your business
Dedicate yourself to what you are passionate about and makes you happy
What are the steps to create a successful passive income system?
Define your financial freedom goal: how much money do you need to live as you want? how long do you want to take to achieve it? what lifestyle do you want to have?
The first step to investing successfully is to be clear about what you want to achieve with your money.
To define your financial freedom goal, you must answer these questions:
How much money do you need to live as you want? This figure depends on your current expenses and your future expectations. You must take into account your essential needs (food, housing, health, transportation, etc.), your personal desires (travel, hobbies, education, etc.) and your long-term goals (retirement, legacy, philanthropy, etc.). For example, if you currently spend $3,000 a month and want to maintain that level of life, you need $36,000 a year. If you also want to travel twice a year, you need $6,000 more. If you want to save for your retirement, you need $12,000 more. In total, you need $54,000 a year to live as you want.
How long do you want to take to achieve it? This figure depends on your saving and investing ability. You must take into account your current and potential income, your saving rate and your expected return. For example, if you currently earn $60,000 a year and save 20%, you have $12,000 a year to invest. If you invest that money in an index fund that gives you an 8% annual average return, it would take you about 18 years to reach the $54,000 a year of passive income that you need to live as you want.
What lifestyle do you want to have? This question helps you visualize what your life would be like when you reach financial freedom. You should think about what activities you would like to do, who you would like to share them with and where you would like to live them. For example, maybe you would like to dedicate yourself to writing books, traveling the world with your partner and living in a house near the sea.
Evaluate your current situation: how much money do you earn? how much money do you spend? how much money do you save? how much money do you owe? what assets and liabilities do you have?
The second step to investing successfully is to know your current financial situation. This will allow you to know where you are and what distance separates you from your goal. To evaluate your current situation, you must answer these questions:
How much money do you earn? This figure is the total of your gross annual income before taxes. You must include all the income you receive from your work or from your investments. For example, if you work as an employee and earn $60,000 a year and also receive $2,000 a year in dividends from stocks that you own, your gross annual income is $62,000.
How much money do you spend? This figure is the total of your annual expenses after taxes. You must include all the expenses that you make to cover your needs and your desires. For example, if you pay $15,000 a year in federal and state taxes and spend $36,000 a year on housing, food, health, transportation and other personal expenses, your net annual expense is $51,000.
How much money do you save? This figure is the difference between your annual income and expenses. It is the money that you have left after paying your obligations and satisfying your needs and desires. For example, if your gross annual income is $62,000 and your net annual expense is $51,000, your annual saving is $11,000.
How much money do you owe? This figure is the total of your current debts. You must include all the debts that you have with third parties, such as mortgage loans, student loans, credit cards, etc. For example, if you owe $200,000 for your house, $50,000 for your education and $10,000 for your credit card, your total debt is $260,000.
What assets and liabilities do you have?
This figure is the net value of your equity. It is the difference between the value of your assets and the value of your liabilities. Assets are the goods or rights that you own and that generate income or benefits for you. Liabilities are the obligations or debts that you have and that generate expenses or losses for you. For example, if you have a house valued at $300,000, some stocks valued at $20,000 and some savings valued at $15,000, your total asset is $335,000. If you owe $260,000 for your loans, your total liability is $260,000. Your net worth is the difference between your asset and your liability, that is, $335,000 - $260,000 = $75,000.
Once you have evaluated your current situation, you must compare it with your financial freedom goal and see what gap separates you from it. For example, if you need $54,000 a year of passive income to live as you want and currently only generate $2,000 a year by dividends from stocks, you are missing $52,000 a year to reach your goal.
Elaborate an action plan: how are you going to increase your income? how are you going to reduce your expenses? how are you going to save and invest your money? what sources of passive income are you going to create or enhance?
The third step to investing successfully is to design your financial action plan. This plan will help you plot the route that you will follow to reach your financial freedom goal. To elaborate your action plan, you must answer these questions:
How are you going to increase your income? This question helps you look for ways to increase the money that enters your pocket. You can do this by increasing the value of your work or creating additional sources of income. For example, you can ask for a raise, change jobs, improve your professional skills, start your own business or generate income online.
How are you going to reduce your expenses? This question helps you look for ways to decrease the money that leaves your pocket. You can do this by eliminating unnecessary expenses or reducing necessary expenses. For example, you can cancel subscriptions that you don’t use, negotiate the rates of your basic services, buy generic products instead of expensive brands or use cheaper means of transportation.
How are you going to save and invest your money? This question helps you look for ways to grow the money that you have in your pocket. You can do this by allocating a part of your income to saving and another part to investing. You can follow the 50/30/20 rule: allocate 50% of your income to essential expenses (housing, food, health), 30% to personal expenses (leisure, education) and 20% to saving and investing.
What sources of passive income are you going to create or enhance? This question helps you look for ways to generate money without depending on your active work. You can do this by creating or enhancing sources that provide you with constant and automatic income without requiring much attention or intervention from you. For example, you can invest in stocks that pay regular and growing dividends; in index funds that replicate the behavior of the market; in real estate that generate rents from rental; in online businesses that generate sales on the internet; in infoproducts that generate income for each download or subscription; or in intellectual property that generate royalties for each use or reproduction.
Once you have elaborated your action plan, you must put it into practice with discipline and consistency, following the steps that you have proposed and measuring your results and your progress.
Review and adjust your plan periodically: what is working well and what can be improved? what opportunities and threats are there in the market? what changes are there in your personal or professional situation? what new learnings or experiences have you acquired?
The fourth step to investing successfully is to review and adjust your financial action plan periodically. This will allow you to adapt to changing circumstances and take advantage of new opportunities that arise. To review and adjust your action plan, you must answer these questions:
What is working well and what can be improved? This question helps you evaluate the performance of your action plan, identifying the positive and negative aspects. You must acknowledge your achievements and celebrate them, but also detect your mistakes and correct them. For example, if you have managed to increase your passive income by 10%, you should congratulate yourself for it, but also analyze which sources have given you more profitability and which ones less, and adjust your strategy accordingly.
What opportunities and threats are there in the market? This question helps you to be aware of the trends and events that affect the financial market, both locally and globally. You must be attentive to the opportunities that may arise to increase your passive income, but also to the threats that may put them at risk. For example, if there is a new technology that promises to revolutionize a sector, you should research if you can invest in it or create a business related to it, but also if it can negatively affect your current investments.
What changes are there in your personal or professional situation? This question helps you adapt your action plan to your personal or professional reality, which may vary over time. You must take into account the changes that may influence your income, your expenses, your savings, your investments or your goals. For example, if you change jobs, you should review your gross annual income and your saving rate; if you get married or have children, you should review your net annual expense and your desired lifestyle; if you inherit a property, you should review your total asset and your net worth.
What new learnings or experiences have you acquired? This question helps you incorporate the new knowledge or skills that you have obtained during the process of executing your action plan. You must be willing to constantly learn about personal finance and investments, whether by reading books, attending courses, listening to podcasts or consulting experts. You must also be willing to experiment with different investment options, testing their profitability, their risk and their suitability to your profile. Once you have reviewed and adjusted your action plan, you must update it and follow it with discipline and consistency, until you reach your financial freedom goal.
Enjoy financial freedom: what are you going to do when you achieve financial freedom? how are you going to manage your time, your money and your life? how are you going to contribute to the world and the people who matter to you? The fifth step to investing successfully is to enjoy financial freedom.
This is the final result of the whole previous process. It is the moment when you have managed to generate enough passive income to live as you want, without depending on a job or a salary. It is the moment when you can choose what to do with your time, with your money and with your life. To enjoy financial freedom, you must answer these questions:
What are you going to do when you achieve financial freedom? This question helps you define how you are going to take advantage of the free time that you will have when you do not have to work to earn a living. You can do what you like best, what you are most passionate about, what motivates you most or what makes you happiest. For example, you can dedicate yourself to writing books, traveling the world, learning languages, practicing sports, playing an instrument, volunteering or whatever comes to mind.
How are you going to manage your money and your life? This question helps you maintain and improve your financial situation and your quality of life. You must continue applying the principles and practices that have led you to financial freedom, but you can also give yourself some whims or luxuries that you could not afford before. For example, you can buy a bigger house, a newer car, a more expensive watch or whatever you want, as long as you do not compromise your financial stability or your happiness.
How are you going to contribute to the world and the people who matter to you? This question helps you give meaning and purpose to your life. You must use your time, your money and your life to create a positive impact on the world and on the people who matter to you. You can do it in many ways, such as: donating part of your income to charitable causes, supporting social or environmental projects, teaching or mentoring other people, sharing your knowledge or experiences, etc.
Once you have enjoyed financial freedom, you should feel proud of what you have achieved and grateful for what you have. You should also continue learning, growing and improving as a person and as an investor.
2 - Defer Your Taxes and Achieve a Dream Retirement: IRA Plans
How to choose the best individual retirement plan for you?
Roth, traditional or reinvestment Would you like to save and invest money for your future with tax advantages? If so, you may be interested in learning about individual retirement plans (IRA, for its acronym in English), which are accounts that allow you to do so.
However, not all IRAs are the same, and depending on your situation and your goals, one may suit you better than another. In this article, we will explain the characteristics, benefits and limitations of the three main types of IRA: Roth, traditional and reinvestment.
What is a Roth IRA and how does it work?
A Roth IRA is an account that is funded with after-tax income, which means that you cannot deduct from your income the contributions made. This implies that you pay taxes on the money that you enter in the IRA, but not on the money that you take out of the IRA. Thus, the money grows tax-free and can be withdrawn without paying taxes or penalties after age 59 and a half, as long as certain requirements are met.
In addition, a Roth IRA has no age limit for making contributions or for starting to withdraw money.
A Roth IRA has some advantages over other types of IRA, such as:
It allows you to save on taxes in the long term, as you will not have to pay taxes on the gains that you have obtained with your investments.
It offers you flexibility to withdraw money when you want or need it, without having to pay taxes or penalties.
It allows you to leave a tax-free legacy to your heirs, as they will not have to pay taxes either when they receive the money from the IRA.
However, a Roth IRA also has some limitations, such as:
It has income limits to be able to contribute, which vary according to marital status and fiscal year. For example, for the year 2023, if you are single and earn more than $144,000 a year, you will not be able to contribute the maximum to the Roth IRA. If you earn more than $159,000 a year, you will not be able to contribute anything to the Roth IRA.
It has annual contribution limits, which are the same as for traditional IRAs. For example, for the year 2023, you can contribute up to $6,000 a year if you are under 50 years old, or up to $7,000 a year if you are 50 years old or older.
It does not allow you to reduce your current tax burden, as you cannot deduct the contributions from your income.
What is a traditional IRA and how does it work?
A traditional IRA is an account that is funded with pre-tax income, which means that you can deduct from your income the contributions made, thus reducing your current tax burden. This implies that you pay taxes on the money that you take out of the IRA, but not on the money that you enter in the IRA. Thus, the money grows tax-deferred and you pay taxes when you withdraw it, according to the tax rate in effect at that time.
A traditional IRA has some advantages over other types of IRA, such as:
It allows you to reduce your current tax burden, as you can deduct the contributions from your income.
It allows you to save on taxes in the short term, as you pay taxes on the money when you withdraw it and not when you enter it.
It has no income limits to be able to contribute, so you can contribute the maximum to the traditional IRA regardless of how much you earn.
However, a traditional IRA also has some limitations, such as:
It has annual contribution limits, which are the same as for Roth IRAs. For example, for the year 2023, you can contribute up to $6,000 a year if you are under 50 years old, or up to $7,000 a year if you are 50 years old or older.
It has an age limit for making contributions and for starting to withdraw money: 72 years. If you do not start withdrawing money from that age, you will have to pay a penalty of 50% on the minimum amount that you had to withdraw.
It has a penalty of 10% if you withdraw money before age 59 and a half, except for some exceptions. In addition, you will have to pay taxes on the money withdrawn.
What is a reinvestment IRA and how does it work?
A reinvestment IRA is an account that is created by transferring funds from an employer-sponsored retirement plan, such as a 401(k) or a 403(b), to an IRA. This allows you to maintain the tax advantages and have more investment options than in the original plan. A reinvestment IRA can be Roth or traditional, depending on the type of plan from which the funds come and the preferences of the holder. Reinvestment IRAs are subject to the same rules as Roth or traditional IRAs, as appropriate.
A reinvestment IRA has some advantages over other types of IRA, such as:
It allows you to consolidate your retirement funds in a single account, which facilitates their management and tracking.
It allows you to access a greater variety of investment options, which can improve your profitability and diversification.
It allows you to change the type of IRA without paying taxes or penalties, as long as you meet certain requirements.
However, a reinvestment IRA also has some limitations, such as:
It has costs associated with the process of transferring funds, such as commissions or administrative fees.
It has restrictions for transferring funds back to another employer-sponsored retirement plan, which may limit your labor mobility.
It has the same limitations as Roth or traditional IRAs, as appropriate.
How to choose the best type of IRA for you?
As you have seen, each type of IRA has its own characteristics, benefits and limitations. Therefore, there is no single answer to choose the best type of IRA for you. It will depend on your personal situation, your financial goals and your tax preferences.
However, there are some factors that you can take into account to make an informed decision:
Your level and source of income: If you earn a lot of money or have variable income, you may benefit more from a traditional IRA that allows you to deduct your contributions and reduce your current tax burden. If you earn little money or have stable income, you may benefit more from a Roth IRA that allows you to save on taxes in the long term.
Your age and time horizon: If you are young or have a lot of time to save and invest, you may benefit more from a Roth IRA that allows you to take advantage of compound interest and withdraw money without paying taxes or penalties. If you are older or have little time to save and invest, you may benefit more from a traditional IRA that allows you to reduce your current tax burden and withdraw money according to your needs.
Your current and future tax situation: If you think that your current tax rate is higher than the one you will have when you retire, you may benefit more from a traditional IRA that allows you to pay less taxes now and later. If you think that your current tax rate is lower than the one you will have when you retire, you may benefit more from a Roth IRA that allows you to pay more taxes now and less later.
In conclusion, individual retirement plans (IRA) are accounts that allow you to save and invest money for your future with tax advantages. There are three main types of IRA: Roth, traditional and reinvestment. Each one has its own characteristics, benefits and limitations. To choose the best type of IRA for you, you must analyze your personal situation, your financial goals and your tax preferences. Remember that you can consult with a financial or tax advisor for more personalized and professional guidance.
3 - Super Sick! Why Do I Keep Waking Up at 4 a.m.?
When you have established a habit for many years, as in my case is to get up at four in the morning from Monday to Sunday, your body creates an internal clock that simply activates at the same time even if you are super sick.
In recent days I was diagnosed with Influenza, my body, throat and fever hurt, so I did not have much energy to create a video that exceeded your expectations.
That’s why I just took a few minutes to ask you a favor: Your opinion about the title, subtitle and cover of a special course that I am creating. I ask you for a minute of your time to enter my Instagram account and leave me a comment about what you think of the photos that I share with you in the video.
Your opinion will be very valuable to me. Thank you in advance!
Watch my video on Instagram
4 - What You Need to Know About Improper Claims to the Employee Retention Credit
The federal government established the Employee Retention Credit (ERC) to provide a refundable employment tax credit to help businesses with the cost of keeping staff employed.
Eligible businesses that experienced a decline in gross receipts or were closed due to a government order and did not claim the credit when they filed their original return can take advantage now by filing adjusted payroll tax returns.
For example, businesses that file quarterly payroll tax returns can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the credit for previous quarters of 2020 and 2021. With the exception of a recovery startup business, most taxpayers became ineligible to claim the ERC for wages paid after September 30, 2021.
A recovery startup business can still claim the ERC for wages paid after June 30, 2021 and before January 1, 2022. Eligible employers may still claim the ERC for previous quarters by filing an applicable adjusted payroll tax return within the deadline set forth in the corresponding form instructions.
For example, if an employer files a Form 941, the employer still has time to file an adjusted return within the time set forth under the “Is There a Deadline for Filing Form 941-X?” section in Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Reminder: If you filed Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit, and you may need to amend your income tax return (e.g., Forms 1040, 1065, 1120, etc.) to reflect that reduced deduction.
IRS warns businesses about requesting improper claims
In response to the continued aggressive marketing related to the Employee Retention Credit, the Internal Revenue Service renewed a warning for businesses to be alert of red flags about erroneous claims related to the credit.
Although the credit is real, aggressive promoters are grossly misinterpreting and exaggerating who is eligible to claim it. The IRS is focusing more on audit work and criminal investigations related to these claims. Businesses, tax-exempt organizations and others who are considering claiming this credit should carefully review the official requirements for this limited program before doing so.
Those who claim this credit improperly face follow-up action from the IRS. The Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit or ERTC, is a legitimate tax credit. Many businesses legitimately claimed the credit during the pandemic.
The IRS has issued notices about aggressive ERC scams since last year and this topic was included in the list of “Dirty Dozen Tax Scams” that people should avoid. This is an ongoing priority in many ways and the IRS continues to increase performance in the area of compliance related to ERC. The IRS has trained auditors to analyze high-risk ERC claims and the IRS’s Criminal Investigation division is working on identifying fraud and promoters of fraudulent claims.
The IRS reminds anyone who improperly claims the ERC that they must repay the amount received, possibly with penalties and interest. A business or tax-exempt group may find themselves in a worse economic position if they have to repay the credit than if they never claim it in the first place. So it is important that you avoid falling for a scam.
How can businesses protect themselves?
The IRS reminds businesses, tax-exempt groups and others who are the focus of these promoters that there are simple steps they can take to protect themselves from improperly claiming the Employee Retention Credit.
Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on advice from those who solicit these credits. Promoters who market on this topic are out to make money and in many cases do not look out for the interest of those who claim it.
Do not claim unless you believe you have legitimate eligibility to claim this credit. Details about the credit are available at IRS.gov and, as mentioned, a trusted tax professional - not someone promoting the credit - can provide key professional advice about ERC.
To report abuse related to ERC, fax or mail Form 14242 (SP), Report Suspected Tax Promotions or Abusive Tax Preparers, along with any supporting material to the Information Development Center at the Office of Promoter Investigations.
5 - How to Effectively Prepare for an IRS Tax Audit: Tips and Best Practices.
What is a tax audit?
A tax audit is an examination that the IRS (Internal Revenue Service) or Internal Revenue Service of the United States performs to verify the accuracy and compliance of the tax returns filed by taxpayers.
The IRS can select a tax return for audit for different reasons, such as:
Because it detects some discrepancy or error in the reported data.
Because the taxpayer has income or deductions that are out of the normal ranges for their profile.
Because the taxpayer is related to other people or entities that are being audited.
Because the taxpayer is chosen at random by a computer system.
The IRS can conduct the audit in three different ways:
By mail: A letter is sent to the taxpayer requesting information or additional documentation on some specific aspect of their tax return. The taxpayer must respond in writing within the indicated deadline.
In the office: The taxpayer is summoned to appear in one of their offices with the required documentation. The taxpayer must attend personally or send an authorized representative.
In the field: The IRS visits the taxpayer’s home or workplace to review their financial and accounting records. The taxpayer must be present or send an authorized representative.
What is the importance of being well prepared for a tax audit?
Being well prepared for a tax audit is very important to:
Demonstrate to the IRS that you have complied with your tax obligations and that you have correctly declared your income, expenses, deductions and credits.
Avoid or minimize possible penalties, fines, interest or additional charges that the IRS may impose on you if it finds any irregularity or non-compliance in your tax return.
Reduce the time and stress involved in the audit process, as well as the costs associated with hiring a tax advisor or accountant.
Prevent or resolve possible disputes or litigation with the IRS in case you disagree with the results of the audit.
What are the steps to successfully face a tax audit?
The steps to successfully face a tax audit are:
Step 1: Organize and review all your financial records and related documentation.
These records and documents include:
· Financial documentation: Such as financial statements, balance sheets, income statements, ledgers, journals, etc.
· Accounting records: Such as accounting systems, accounting software, spreadsheets, etc.
· Invoices and receipts: Such as sales invoices, purchase invoices, expense receipts, donation receipts, etc.
· Bank statements: Such as bank statements, checks, transfers, deposits, withdrawals, etc.
· Tax vouchers: Such as forms W-2 (wages and taxes), forms 1099 (miscellaneous income), forms 1098 (mortgage interest), forms 1040 (annual tax return), etc.
It is important that you have all this documentation sorted chronologically and classified by categories, as well as that you keep it for at least three years from the date of filing your tax return. It is also advisable that you make backup copies of all the digital information and that you keep the originals in a safe place.
Step 2: Check that you are up to date with your tax obligations and filings
The second step is to check that you are up to date with your tax obligations and filings. This means that you must verify that you have paid all the taxes that apply to you and that you have filed all the tax returns required by the IRS.
Some aspects that you should review are:
· Tax payment: You must make sure that you have paid all the federal, state and local taxes that apply to you, as well as the payroll taxes, social security, Medicare, etc. You must also check if you have any outstanding balance or any payment plan in force with the IRS.
· Tax returns: You must make sure that you have filed all the annual, quarterly or monthly tax returns that correspond to you, as well as the informative or complementary returns that the IRS has requested from you. You must also check if you have received any notice or notification from the IRS about your tax situation.
· Tax compliance: You must make sure that you have complied with all the rules and regulations that affect you, as well as with the documentation, registration and reporting requirements that the IRS establishes. You must also check if you have correctly applied the deductions and tax credits that you are entitled to.
Step 3: Evaluate possible areas of risk or potential problems in your financial situation
The third step is to evaluate possible areas of risk or potential problems in your financial situation. This involves identifying and analyzing the aspects of your tax return that may attract the attention of the IRS or generate some doubt or controversy.
Some examples are:
· Tax vulnerabilities: These are those elements of your tax return that may be considered as indicators of evasion or avoidance, such as undeclared income, non-deductible expenses, excessive deductions, improper credits, etc.
· Accounting inconsistencies: These are those elements of your tax return that may be considered as errors or irregularities in accounting, such as discrepancies between financial records and tax vouchers, differences between gross income and net income, deviations between actual expenses and budgeted expenses, etc.
· Possible errors in the tax return: These are those elements of your tax return that may be considered as mistakes or oversights when filling out the form, such as incomplete or incorrect data, miscalculations, omissions or duplications, etc. For each of these areas of risk or potential problems, you should prepare a reasonable and supported explanation that justifies your tax position and demonstrates your good faith. You should also be prepared to correct or rectify any error or inconsistency that the IRS may detect.
Step 4: Consider hiring a tax advisor or accountant specialized in tax audits The fourth step is to consider hiring a tax advisor or accountant specialized in tax audits.
Although it is not mandatory, it can be very convenient to have the help of a qualified professional who assists and represents you during the audit process.
Some advantages of hiring a tax advisor or accountant are to receive:
· Guidance on how to organize and present your financial and tax documentation.
· Advice on how to respond to the questions and requirements of the IRS.
· Defense against possible claims or sanctions from the IRS.
· Help to negotiate a favorable agreement with the IRS in case of discrepancy.
To hire a tax advisor or accountant, you should look for one who has experience and reputation in the field of tax audits, as well as a valid license to practice their profession. You should also sign a service contract and a power of attorney that gives them authorization to act on your behalf.
Step 5: Maintain clear and open communication with the tax auditors throughout the process.
The fifth and final step is to maintain clear and open communication with the tax auditors throughout the process. This implies that you must cooperate with the IRS and provide them with all the information and documentation they request, as well as answer their questions and requirements honestly and accurately.
Some recommendations for communicating with the tax auditors are:
· Respect the deadlines and appointments that the IRS indicates. If you need more time or have any inconvenience, communicate it to the IRS as soon as possible and request an extension or rescheduling.
· Be courteous and professional with the tax auditors. Do not treat them as enemies or friends, but as officials who are doing their job. Avoid confrontations, arguments or hostile or defiant attitudes.
· Be clear and concise in your answers. Do not give more information than they ask for or invent or exaggerate anything. If you do not know or remember something, say it sincerely.
· Keep copies of all the communication you have with the IRS. Save the letters, emails, text messages, phone calls, etc. that you exchange with the tax auditors. These records can be useful to clarify or resolve any pending issues.
Remember! With proper preparation, you can face a tax audit with confidence and reduce risks.Diagrama de Estructura Legal y Fiscal
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Antonio Coa, CPA
Tax Specialist &
Antonio Coa, LLC
Whatsapp: (561) 814-4558