Tax accounting refers to the administrative sub-sector of accountancy that deals primarily with the preparation and auditing of tax payments and tax returns. Individuals, businesses, organizations and other entities utilize tax accounting. For an individual, tax accounting requires greater attention, with greater scrutiny as to what is not tax-free and how funds are used. Organizations also utilize tax accounting to determine the eligibility of their current employees for tax-deduction opportunities.
Many accountants specialize in tax accounting, earning an accredited accountant degree or having many years of experience in the field. Some can also choose to focus on a specific area, such as international taxes, and get employed by Porte Brown or similar major finance firms. In order to succeed, tax accountants must understand the ins and outs of the tax code, as well as the many rules that apply to each state and local government form. Auditors, on the other hand, must be able to review and examine the books of tax payers in order to ensure that the correct tax codes have been used, as well as ensure that there have been no errors made.
The audits that tax accountants conduct are similar to those that auditor do to ensure the accuracy of tax statements. However, since the taxpayers’ financial records are often complex and difficult to understand, it can take an experienced tax accountant quite a long time to go through them, piece by piece, to ensure that everything is accurate. Auditors, on the other hand, have only a very basic understanding of the tax code and may not be able to find all the areas of discrepancy in the tax return that would raise questions. Therefore, they have to spend even more time looking at the tax returns to ensure that they are not missing anything important.
In addition to the audits done by tax accountants, there are many cases where tax payers are actually guilty of using improper deductions. In these cases, tax accountants can prepare the tax returns correctly and then hand them over to auditors. However, if the return includes wrong documentation, such as incorrect information about where expenses should be paid or what deductions should be claimed, the auditors can use this to their advantage. If the information is accurate but for some reason cannot be found in the tax return, the tax accountants will file a report that states the error, along with any evidence that supports it. In some cases, this can tip the auditor into the improper deductions and allow them to deduct the wrong amount on the return, causing the taxpayer to be hit with a large tax bill.
The IRS has created a special set of rules and regulations that will help tax accountants make sure that they do not get themselves into trouble with the Internal Revenue Service. One of these is the Fair Share Income Protection Act, or the FRA. The purpose of this act is to protect taxpayers from abusive tax accounting practices. Audits that end up finding that an accountant has improperly reduced a deduction can be penalized under the FRA. Audits that find an error in the internal revenue code can even result in serious consequences, including criminal charges.
To avoid having your taxes audited, it is a good idea to familiarize yourself with the different methods of tax accounting and learn what methods are considered abusive tax accounting. Also, it may be wise to sign up for a tax resolution service to keep track of any complaints or settlements that have been made against you. Finally, make sure to keep all records of income taxes, even those tax documents that are not required to be filed with the Internal Revenue Service. If you have any tax assets at a bank, make sure to keep track of where they are. With all of the tax paperwork that comes in the mail, it can all seem overwhelming, but keeping track of everything will ensure that nothing is missed.