Last week, I wrote a post on the Tax Resolution University blog after coming across a Forbes article titled: “5 Steps to Keep the IRS Out of Your Hair.” The article focused on ways to prevent tax issues especially ones that could potentially trigger an IRS audit.
The following are five tax tips Forbes recommends (along with my added comments) so that taxpayers can stay compliant and prevent future IRS tax issues.
1. File On time – Always file on time and if you need an extension, don’t hesitate – request one. Just make sure you file a tax return. If you don’t have the money to pay your tax debt, file the return anyway and enclose a check for $25. That payment will remove the 25% failure to file penalty and creates a record at IRS that you filed on-time and made a good-faith effort to pay toward the taxes due.
Taxpayers can also request an Installment Agreement with the IRS by going to the irs.gov website and requesting Form 9423. Tip: Take the amount owed and divide it by 60 (months). If you can afford to pay the tax due amount off in 60 months, the IRS will accept the Installment Agreement.
2. Don’t Ask for Too Large a Refund – If you anticipate a giant refund – know that this could trigger an audit. Instead, you should consult with a tax professional to make sure your withholdings are in-line with your income.
3. Keep Organized Records – Keeping good financial records will benefit you in an individual or business audit. Helpful tip: According to Forbes, even recreational gamblers can benefit from good record keeping practices when they keep a diary or record of how much they bet and lose on each visit.
4. Report All 1099’s – As the article indicates, the IRS spends most of its time matching information i.e. taxpayer identification numbers with the income that’s been reported to them. If there is a mistake on your tax return, you will most likely hear from the IRS (income discrepancies are #4 of the Top Five Audit Triggers Infographic.) Important point: Read all 1099’s before tax day to clear up any discrepancies. Forbes recommends that if there was no resolution before tax day to file your tax return including a note explaining the discrepancy.
5. Keep Personal and Business Records Separate –This is especially important as the IRS is laser focused on small business tax cheating. Make sure there is clear separation between business and personal records; otherwise you may find yourself facing an examination of your books in an IRS audit.
Hiring a Tax Professional to Help – The IRS is only interested in assessing as much money as they can and will trample taxpayers’ rights when they don’t know what their rights are.
If the IRS or state income tax authority has sent you an audit letter, you will want to hire a qualified tax audit specialist who understands your rights and will make sure you are treated fairly. This team of tax audit experts will take over all communications with the IRS on your behalf and help you negotiate the best strategy for resolving your tax issue for good.
