The IRS probably already knows many of your financial accounts, and the IRS can get information about how much is there. Having a bank account can help establish your income, especially if you receive payments by check. Copies of deposit slips, cashed checks, and bank statements can support your claims. Keep a separate bank account for your company and don't mix it up with your personal bank account.
Despite Republican accusations that the IRS wants to spy on taxpayers, it's important to note that banks would not report individual transactions, only an annual total of deposits and withdrawals. And your investigators will stop at nothing if they even suspect that you've been lying on your tax return. If you have to collect sales tax on the items you sell or the services you provide, 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.
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 VAT. The Biden administration wants Congress to give the IRS the authority to search people's bank accounts for a tool to help find tax traps. Don't 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 the unwary. The Biden administration wants to improve the tax collector's financial radar, 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 the money” in a current account, which does not generate any income and, therefore, does not generate any tax liability. That could also deter tax evasion, just as drivers are less likely to accelerate when they know there's a police officer around the corner with a radar gun. If the Department of Revenue has questions about a person's tax matters, it will look for any information it can find about that person, including Facebook posts and tweets. If HMRC is investigating a taxpayer, it has the power to issue a “notice to third parties” to request information from banks and other financial institutions.
