The Internal Revenue Service (IRS) is likely already aware of many of your financial accounts, and they can obtain information about how much money is in them. Having a bank account can help to establish your income, particularly if you receive payments by check. Copies of deposit slips, cashed checks, and bank statements can all be used to support your claims. It is also recommended that you keep a separate bank account for your company and avoid mixing it with your personal bank account. Despite Republican accusations that the IRS wants to spy on taxpayers, it is important to note that banks would not report individual transactions, only an annual total of deposits and withdrawals.
Furthermore, if the IRS suspects that you have been lying on your tax return, they will stop at nothing to investigate. If you are required to collect sales tax on the items or services you provide, it is recommended that you set up a separate account or sub-account to place that income and keep it separate from the rest of your company's revenues. The IRS could look for discrepancies between a taxpayer's total bank deposits and withdrawals and their reported income. Her Majesty's Revenue and Customs (HMRC) has the power to obtain relevant information from taxpayers to verify that they are paying the correct amount of income taxes, capital gains taxes, corporate tax, and Value Added Tax (VAT). The Biden administration has proposed giving the IRS the authority to search people's bank accounts as a tool to help find tax traps.
It is advised that you do not touch this account except to use the money to pay the state when your sales tax returns are due. If the new proposals from the Office of Tax Simplification become law, the tax collector could access your financial data even if it is not being investigated. Tax inspectors are also now working covertly, in disguise and as a team to eradicate suspicious behavior. These are some of the other methods - some high-tech and others very traditional - that tax authorities use to catch those who are not paying their taxes. The Biden administration wants to improve the tax collector's financial radar by requiring banks and other institutions to tell the IRS how much money goes in and out of individual accounts each year.
Rob Nichols, president of the American Bankers Association, recognizes that combating tax evasion is an important goal for the government but insists that the proposed reporting requirement is not the right way to do so. Sometimes checks are offered or there is the possibility of “temporarily parking” money in a current account which does not generate any income and therefore does not generate any tax liability. This could also deter tax evasion in much the same way as drivers are less likely to speed when they know there is a police officer around the corner with a radar gun. If the Department of Revenue has questions about a person's tax matters, they will look for any information they can find about that person including Facebook posts and tweets. If HMRC is investigating a taxpayer, they have the power to issue a “notice to third parties” requesting information from banks and other financial institutions.
