Many employees have transitioned to working from home as the COVID-19 pandemic grew. With the coronavirus pandemic still gripping our nation, this trend might continue – and numerous employers coming up with strategies that allow employees to work from home permanently.

Advantages and Disadvantages of Remote Work

There won’t be any tax implications for you if you work in the same state that you live in and file your taxes. However, if you’re not working in the same state where you were previously going to work (that is, you get to your job by crossing state lines), there might be some tax consequences.

While there won’t be any impact on your federal income tax, income tax for state taxes depend on where your employer or remote office is based. This means you might have to shoulder more tax burdens.

Living or working in a state can lead to ‘tax nexus.’ But what does the term ‘nexus’ refer to? Well, it’s used in tax law to describe when a business has a tax presence in a specific state. Simply put, nexus is a connection between an entity that must pay/collect the tax and the taxing authority.

For all businesses, one key determinant for tax nexus is having a physical presence. If a business has employees located in a state, it may lead to tax nexus – even if they’re working remotely.

Many states have specifically indicated that a telecommuting employee whose home isn’t considered a place of business for the company, has no contact with in-state customers, and who is not engaged in sales would still lead to tax nexus in the state where the employee is present.

In simple words, the remote home of the employee could be perceived as an office location, but then the employer would be subject to tax nexus in that state. Likewise, the employee could be subject to state income tax in the state they’re remotely located.

While this was an issue before the coronavirus pandemic, it’ll now likely become a more important issue among states. While some states aren’t providing any exceptions, others are granting coronavirus-related exceptions for a specific time. However, there’s a chance there will be an increase in disputes over tax nexus soon because the states are currently hungry for tax revenue dollars due to the COVID-19 pandemic.

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Millions of people let their taxes go unfiled every year, and the longer that the situation goes on, the more unsure they get about their predicament. They may ask themselves if it’s better to just never file again if the IRS won’t notice or if something’s going to happen if they do start filing now.

Here’s a comprehensive guide on the consequences of unfiled tax returns and how you can deal with them:

It’s illegal

Any year that you have a filing requirement, the law requires you to fulfill your duty. If you fail to file your return, the government can charge you with civil or criminal penalties.

Extra expenses

There’s a large penalty for filing your taxes late — with a 5% fee on each of the first 5 months’ taxes going up to a total of 25% of your total tax bill. You’ll also be charged interest by the IRS until you’re able to pay off the balance.

Lost refund

If you file your returns too late, you might lose any refund that you were supposed to get with it. File your return within 3 years of the date that it was due in order to get access to your refund.

You could get audited by the IRS

The IRS evaluates back tax returns in the same way as all other returns. However, if you don’t file for a handful of years and suddenly file a large return with a huge amount of income from self-employment, it could cause the IRS to open an audit due to the red flags.

There are increased chances of getting audited if you leave off income that has already been reported to the IRS, making it important to prepare your back tax returns properly.

Professional tax attorney in Baltimore County

Navigating tax laws is difficult without an in-depth understanding of finance and taxation. However, an IRS audit lawyer can advocate for your rights and take care of all the legalities. If your unfiled taxes lead you to get called into court, you may need to hire the services of both a criminal defense lawyer and a tax lawyer to protect you.

At Lincoln Law Group, you can find a diverse team of legal professionals in Silver Spring, including tax attorneys, criminal defense attorneys, family law attorneys, immigration lawyers, and personal injury lawyers in Baltimore and Silver Spring.

Reach out to us to find out more about their services.

Less than 1% of people who pay their taxes get flagged by the IRS and receive an audit letter. There’re common audit triggers where the IRS can ask you to verify or explain something that’s on your return, such as:

• Filing status
• Unreported income
• Itemized deductions
• Dependents
• Credit eligibility

If you were completely honest during the filing process of your tax return, the audit is easily handled. However, if you intentionally wrote down the wrong information, then it could turn into a bit of a sticky situation. Either way, open your tax audit letter as soon as you get it.

Contact your tax professional if you got your taxes for the year handled by them and inquire about the problem. If they’re unable to clarify, ask for a review for your return from a qualified tax professional.

Identifying an IRS audit letter

The IRS doesn’t only send a letter if you’re being audited. they might simply be asking you for clarification of certain details or additional information regarding the details that are listed on your return.

The letter should arrive through certified mail, with your name, form number, taxpayer ID, contact information, and employee ID number identified on the inside. The letter will elaborate on the documentation that you’ll need to resolve any issues and what the primary focus for the audit is.

Responding to an IRS audit letter

Responding to an IRS letter within 30 days is imperative as any longer can get you penalized. It’s best to save tax documents for at least 3 years since the IRS has 3 years to audit you from the filing date. If you don’t have the relevant documentation, you can try to get support from outside parties who may have a reasonable method of verification for your claims’ accuracy.

How a Tax Lawyer Can Help

An audit response letter needs to be absolutely flawless, as a single mistake can delay any resolutions. Reach out to our IRS audit lawyer in Baltimore, Silver Spring, Towson, and Washington D.C. We can help you get your papers in order and take over correspondence with the IRS to expedite a quick resolution.

At The Lincoln Law Group, our lead attorney has experience in IRS procedures and tax controversies, providing you with confidence that an experienced attorney is taking charge. Contact us for an appointment — we have immigration lawyers, divorce attorneys, and criminal defense attorneys on our team too.