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Roni Deutch asked:


Keep Neat

One of the easiest ways to get audited is by simply not providing all the correct documentation. When doing your taxes, it can be easy to miss a step or forget to include a few things. Unfortunately, this looks like evasion to the IRS, so do everything you can to keep all your tax documents together before tax season. That way you can make sure that all of your returns are accurate before you file them.

Keep Business Separate

It’s easy to get carried away when buying stuff for “the office”. However, make sure that when you are buying anything for your business that it is a business expense allowed by the IRS. Additionally, too many write-offs for your business that seem suspicious are a big red flag for the IRS, so only write-off items that clearly serve a business function.

Check Your Income

Make sure the income you put on your return matches the income number on your income forms exactly. While this does not always make for an audit, it only takes a few things to raise suspicion. Listing an incorrect income is of the easiest ways to get audited, but can easily be avoided by double-checking your return before you file it. 

Remember the Extras

It is imperative to include any and all cash gifts, gambling winnings, or contest prizes you received during the tax year. One famous case of this mistake was the winner of the first survivor, Richard Hatch, who “forgot” to claim his million dollar prize and eventually went to jail for tax evasion. 

Be Honest

Things like round numbers and unrealistic charity deductions are a dead give away. Always be honest on your return, even if it means you will owe the IRS money. If audited and found in error, then the IRS will assess interest and penalties on top of the original tax liability.

Check With a Professional

If you are not completely sure your information is accurate or correct, then you should check with a tax specialist. Even if you are used to doing your taxes on your own, making a big mistake on your return and getting audited is not worth it. Hiring a professional may cost a little more, but at least you can rest assure that your return was prepared correctly. 

Frugality

The more big and expensive items you buy, the more likely you are to make a mistake on your taxes and get audited. To avoid accidentally missing a large ticket item on your tax return, try to buy your large items in moderation and keep records of all purchases. 

Be Meticulous

Even if you do keep good records, hire a professional, and spend frugally, you can still be audited. The only way to truly avoid this is to follow all of the above steps, and then meticulously go over all your information and check for mistakes. When it comes to tax filing, mistakes are easy to make, and taking the extra ten minutes to review your return can save you a lot of time in the future.



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Subhash asked:


A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state. Taxes could also be imposed by a subnational entity. Taxes consist of direct tax or indirect tax, and may be paid in money or as corvée labor. In modern, capitalist taxation systems, taxes are levied in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. In the rush to get tax returns prepared and filed by April 15th, many overpay their taxes. Following are a few tax reduction tips that could help you save a bundle.

Tax Credit for Starting A Small Business Pension Plan:

Establishing a pension plan can help you retain important employees. What many business owners don’t realize is a tax credit can be claimed if the business has 100 or fewer employees. Meet this requirement and you can take a tax credit of up to $500 in each of the first three years of the plan. Tax credits are extremely valuable because they are deducted directly from the taxes you owe, not gross revenues. The credit is 50% of certain start up costs you incur in each of the first three years. The costs include the expenses incurred in establishing and maintaining the plan. They also include the cost of any educational retirement planning programs you provide for employees.

Share investment tax reduction:

Investors who invest in shares may be able to claim tax credits through “dividend imputation”. The divedends from company shares which have been taxed at the full rate are not taxed again in the hands of the investor.

Where the rate of tax paid by the company over and above your personal tax rate. Divedends which attract these tax credits are called”frank dividends”.

Not all share investments produce “franked” dividends. Ask your financial planning adviser to prepare a portfolio that suits your needs.

Personal Loans To Business:

Many business owners lose track of loans they make to their business. As a result, they incorrectly classify the proceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business and adds to the tax liability. Closely review your records for 2004 to make sure you are not making this mistake. Pay particular attention to charges on personal credit cards. You will be surprised how quickly the numbers add up.

SUV Deduction Wounded, But Still Alive:

Much has been made about the “SUV Tax Deduction” that allowed purchasers of SUVs over 6,000 pounds to immediately deduct up to $100,000 of the cost. Many mistakenly believe that the American Jobs Creation Act of 2004 eliminated this deduction. It did not. Instead, it reduced the deduction to $25,000 with the remaining amount allocated to depreciation. This is still a significant immediate deduction. If you purchased a non-SUV truck that weighed over 6,000 pounds in 2004, you are not restricted to a “mere” $25,000 deduction.

Insurance Bonds and Tax Reduction:

For investors who do not require income from their investments, Insurance Bonds and friendly Society Bonds, offer you a high level of security as well as tax advantages. This is long term investments and provided you hold your bonds for ten years, the returns are tax free in your hands.

Sales Tax Deduction:

If you itemize deductions, you have a choice of deducting your state and local income taxes OR your state and local sales tax. This option is available for the 2004 and 2005 tax years. If you live in a state that does not collect income tax, the optional sales tax deduction should be claimed for significant tax savings. See IRS Publication 600 for more information.

Deduction for Discrimination Lawsuit Costs:

If you were required to pay attorney’s fees and court costs associated with a discrimination lawsuit, you may be able to claim a tax deduction. The deduction is available only for costs and fees incurred after October 22, 2004 in relation to a judgment and settlement. The deduction is not limited by the alternative minimum tax. Realistically, this deduction will be more viable for the 2005 tax year, but a few taxpayers may be eligible this year.

Tsunami Relief Contributions Paid in 2005:

Millions of Americans contributed to charitable organizations providing relief to Tsunami victims. Typically, charitable contributions are deducted in the year they are made. New legislation, however, allows you to deduct Tsunami contributions you made in January 2005 on your 2004 tax returns. Alternatively, you can wait and deduct the donation on 2005 returns. Unfortunately, you cannot deduct the contribution on both!



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Michael Rozbruch asked:


10 things taxpayers can do before December 31, 2008 to reduce the tax bill due on April 15, 2009

In this troubled economy, tax planning has never been more important, and small businesses and individuals can get started on trimming taxes now, before the end of the year. It has been a bad year for many, so it’s crucial to employ financial strategies that can help alleviate potential IRS increases and minimize tax liability. What I do as a tax resolution specialist is help reduce a client’s IRS debt, which is essentially conducting financial planning in reverse. So I know how important it is for people to know their taxpayer rights in the first place so they can avoid tax trouble as well as save money.

For 2008, savvy income and deduction management can help taxpayers make the most of a bad year. People will also want to consider maximizing annual contributions to retirement plan accounts, using long term capital losses to offset long term capital gains, and taking advantage of popular tax breaks extended for 2008. These days, no one can know for certain what their future income will be like or what direction the financial markets will take. Plus tax rules can change, especially with a new Presidential administration and a new Congress. Therefore the general rule is that the more prepared you are now, the less you will likely owe later when the taxman comes.

So start getting your 2008 taxes ready with these simple tax tips that can help you reduce stress and save money.

1. Accelerate your deductions into 2008. You want to essentially bunch together your deductible expenses into 2008 if you can. For example, if you make state estimated state income tax payments, you can make them on December 31 so you get the deduction (on your federal return) in 2008. You can also charge these expenses on your credit card(s) in 2008, receive the deduction in 2008, even though you won’t be paying for them until 2009.

2. Defer income into the 2009 so you don’t pay taxes on it in 2008. If you’re self-employed or an independent contractor (like a carpenter, electrician, plumber, psychologist, psychiatrist, chiropractor, doctor, etc.) you can do work now in 2008, but not send out the invoices to your customers till January 1, 2009. This is perfectly legitimate and you won’t have to pay taxes on that income till you receive payment in 2009.

3. File your return on time, even if you don’t have the money to pay your tax bill. If you can’t afford to pay your taxes, you can still file your return on time and save 25% on the failure to file penalty right off the bat. What many people don’t understand is that filing an extension just puts off the inevitable, because it’s not an extension of time to pay, it’s just an extension of time to file.

4. Accelerate your medical expenses. If you itemize your deductions, there’s a limitation on medical expenses and you may deduct only the amount by which your medical care expenses for the year exceed 7.5% of your adjusted gross income. So if you have any medical procedures or dental procedures that you’re putting off, now is the time to get them done. You don’t have to pay for them necessarily, you can put them on a credit card and just pay the minimum balance on the credit card, but you can take the full deduction of the year that it took place.

5. Pay you’re an extra’s month’s worth of the mortgage. Make your January mortgage payment in December, so you get can deduct that interest in 2008.

6. Pay your property taxes early. Pay your property taxes that are due in 2009 by the last day of 2008 to accelerate that deduction.

7. Long term capital losses can be used to offset long term capital gains. If you had gains at the beginning of the year and losses now, you can use those losses to offset gains. If you have more losses than gains they can only be used to offset 300 of ordinary income per year. Please keep in mind though that unrealized (not actually sold) losses, especially those in retirement accounts are not deductible.

8. Use gift contributions to lower your tax liability. In terms of gift giving, you can transfer up to $12K per person per year without paying gift tax on the amount transfers. If you have married grandparent, they can give $24K per person by splitting there fist. In 2009, that exclusion rises to $13K each. Persons over the age of 70 1/2 can contribute up to $100,000 from their retirement accounts to a charity of their choice without paying taxes on that income.

9. Maximize annual contributions to retirement plan accounts. This is important because ones year’s limit cannot be added to the next year’s if not taken in time. Now contributions to IRAs may be applied retroactively, if made before the filing deadline and an individual’s elective contribution. As many plan account owners have realized in 2008, it is that managing a tax preferred retirement account is not a “set it and forget it.” Now in 2008 you can deduct up to $15,500 per individuals. If you’re 55 and over, I believe that goes to $20k , and you can have an arrays of different investments in your 401K. As the individual, you can choose the type of asset allocation or risk that you want.

10. Take advantage of tax breaks. The Emergency Economic Stabilization Act of 2008 includes several tax breaks that may offer a little help to the average American. Many of the provisions extend tax breaks that had expired at the end of 2007. Some of the popular tax breaks offer opportunities for tuition deduction, extended write-offs for sales taxes, help for disaster victims and some Alternative Minimum Tax relief.

For more advice and information on reducing your IRS debt, visit www.taxresolution.com for a free tax relief consultation or call 866-477-7762.

 



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