April is coming to a close and the overwhelming anxiety of taxes is slowly beginning to fade - but deep down we know there is a chance it might not really be over.
Take a moment to knock on wood before you dive into this blog post because today we are tackling the palm-sweating topic of getting audited. For those of you who have already slipped into a panic attack only one paragraph in - take a deep breathe and relax, it is estimated that this year less than 1% of people will be audited by the IRS.
Now granted many audits are done entirely at random, but there is also a portion of victims who bring it upon themselves with poor tax practices. Your taxes may be done, filed and that projected return may have already been spent - but hindsight is 20/20 so here are four best practices to avoid an audit come next April.
One of the most popular red flags that has the IRS pull a filing is simple math errors. Really this tip boils down to the old adage of "measure twice and cut once," whether you are filing on your own or looking over your accountants work - don't hesitate to do a second lap. Make sure the totals in your columns add up and that your capital gains and losses are correct.
One of the most popular reasons a filing gets pulled by the IRS is that people forget to sign their tax return. Whether its ignorance or oversight the detail isn't usually enough to get you an audit but it does draw attention to your file which can expose other errors, omissions and mistakes. Be sure to carefully review every page, print or digital, and in the words of Wayne Campbell, "Be sure to cross your t's and dot your lower case j's."
A major red flag for the IRS are those who underreport their income either drastically or consistently. Now many people shrug such warnings off and think, "How can such a huge entity even notice a few bucks missing off the top?" The truth is, often they cannot but if and when they do - it's not going to be much fun. High penalties, gained interest and further investigation will most likely cost you far more than you managed to slip past them.
Being self-employed comes with many perks and there most definitely exists numerous tax breaks and deductions that are often overlooked but like any benefit, don't abuse them. The IRS allows for many crucial supplies, equipment and costs to be written off for working out of the home but if you start looking for a deduction on new granite countertops or an overstuffed couch - you will most likely get audited.
So there you have it, four little pieces of advice to avoid the big headache of an IRS audit.
Independent consultants should consider these eight things before creating a business plans.
News and notes for the independent workforce and their clients. This is the October 24, 2016 edition.