Saturday, January 28, 2012, PM | 1 Comment
Always be honest when you do taxes whether you do them yourself or hire a tax preparer. The government has been targeting sleazy tax preparers. It goes after them in court and then audits their clients. Recently, the government got an injunction against a Connecticut tax preparer who not only inflated taxpayers’ business expense deductions but also wrote off their transfers to relatives as charitable contributions.
Review documents against your tax return
Make sure the W-2s and 1099s sent to you by employers, brokers and banks match the numbers you will be reporting to the IRS. If you receive an incorrect document, demand that a corrected one be sent to both you and the IRS.
File your tax return no matter what
If you file and don’t pay, the penalty is just 0.5% per month. If you don’t file or apply for an extension by April 15, there’s a 5% per month penalty on the balance due. That’s 10 times more money per month. Both penalties top out at 25% of the amount due and are in addition to interest. For unpaid balances up to $25,000, you can apply for an installment payment agreement online.
Be careful when you make charitable deductions
Congress has tightened rules for claiming charitable deductions. The IRS conducts by mail each year 1.1 million limited issues. Charitable deductions make them a strong target for the audits.
Un-reimbursed business expenses must be documented
These are another target for by-mail audits. All your deductions in this area might be denied unless you produce proof of expenses acceptable to the IRS. Watch out for special rules for deducting travel and entertainment.
Keep track of your gambling winnings and losses
Gambling winnings are fully taxable. But you can deduct your gambling losses, up to the amount of your winnings, as a miscellaneous itemized deduction.
Congress has beefed up rewards for squealing to the IRS, giving clerks at every two-bit offshore bank an incentive to copy all the names onto a flash memory stick and rat them out. Failing to disclose a foreign account is a felony. You probably should get a lawyer to handle this.
Be on good terms with your all kinds of Ex-es
If you don’t want to be caught for tax evasion, never get a divorce and never fire your bookkeeper. Never cheating helps too.
In a Nutshell
Cheating might pay in the short-term. But it will come back to haunt you and that’s for sure.