Calculating Income for Delinquent Tax Returns – Paul Gaulkin CPA

incomeIn the case of delinquent tax returns, the taxpayer may need to use unconventional methods to calculate the income they had earned in prior years. There are many different methods available to the taxpayer depending on factors such as the availability and adequacy of the taxpayer’s books and records.

Methods for Calculating Income

The primary methods for the taxpayer to calculate their income in regard to filing their delinquent tax returns include:

1. Indirect bank deposit method
2. Indirect expenditure method
3. Indirect net worth method
4. Direct specific item or transaction method

Each of these methods has specific rules and calculations that need to be carried out carefully in order to come up with the correct amount of income. It is important to understand that many of them can be open to interpretation and therefore the IRS may ask for confirmation of the procedure used to calculate your income using one of these methods.

Documents and Source Records

Many documents can come in handy when trying to calculate the income earned for delinquent tax returns, these include:

1. Forms W-2 and 1099(independent contractor)
2. Previously prepared financial statements
3. Recorded deeds
4. Credit Reports
5. Broker Statements
6. State automobile records
7. Social Security Administration statement of account
8. States of charitable contribution from various organizations
9. Utility and phone company records
10. Doctor and hospital statements for medical services
11. Statements of account with credit card companies

This list can be much longer depending on your unique situation. Each document can help piece together a record of your income from prior years and provide a basis for your calculations. It is important to attain as many financial documents as possible in order to be as accurate as possible with your estimates.

Amending a Filed Delinquent Return

In some situations, a taxpayer who has filed a delinquent tax return will come across new information or documents that change their income or financial picture of prior years. In these situations, it is best for the taxpayer to file an amended return indicating the new information that was attained.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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