Benjamin Franklin is famously credited as saying that “nothing in this world is said to be certain, except for death and taxes”. And sure enough, we all must file our income tax returns each and every year. But you know what isn’t certain? A tax audit. They do happen, but they’re certainly not inevitable… And there are plenty of ways to make an audit less likely.
While these methods are not surefire ways of preventing an audit (because sometimes audits are just random check-ups), they do reduce the odds. And, if you are audited at random, many of these tips can prevent a large debt to the IRS.
Accurate reporting of income. For those of you who enjoy several streams of income, it can be easy to overlook one of them (especially if the income received is irregular). Make sure to gather all investment statements and other proof of income before filing your taxes.
Research deductions before claiming them. It’s easy to accidentally claim something that is not actually an allowable deduction. For example, regular commuting expenses are not allowable business expenses, but a special trip for work is deductible. Check deduction guidelines carefully before utilizing them.
Hang onto your records for three years. If any of your deductions or credits are questioned, you will need proof to back up your claims. In particular, the IRS will often scrutinize claims of charitable contributions, so file those receipts in a safe place. Keep records of business expenses, too.
Speaking of charitable contributions… This is one of the most frequently confused tax deductions. You can only claim the deduction for contributions given to organizations that are certified by the IRS. when donating items to charities, claim their current fair market value (not their original purchase price). And, if you receive anything in exchange for your contribution, you must deduct the value of it from your contribution.
Use tax software rather than a paper return. Tax software generally reduces the amount of mistakes.
Keep in mind that many financial planning decisions must be made in the year before you file your taxes. So keep regular appointments with us, so that together we can stay on top of the decisions that might affect your tax situation next spring.