Avoiding the IRS’ you’re-being-audited club!
As far as exclusive clubs are concerned, one of the most difficult to enter is the elite group, which has been audited by the Internal Revenue Service. Few people come in (and in this case, outside), but if you do, keep your hat on. Also your house, salary, retirement checks and everything else Uncle Sam can sell to pay off your surprise debt. In recent years, audits have been reduced because Congress and / or the White House have reduced the budget and staffing of the IRS. You add additional responsibilities for IRS employees at all times. Oh yes, there is so long for a global pandemic.
But things are about to change. The IRS is likely to receive more money and more aid. If you like the idea of everyone paying their full share, that’s good news. But if you are chosen for an audit, tighten your belt, because it can be a wild, awkward ordeal. Even if you come out in good health. If not, consider the disadvantages of all costs, but a mandatory wait at the federal pen. The best thing to do with auditing is to learn how not to become a target. Which is the subject of today Your turn show, with guest Tom O’Rourke. He is a real estate and tax attorney – and was a longtime lawyer with the IRS. Catch the show at 10 a.m. ET streaming here or by radio at 1500 AM in the DC field. The good news, he says, is that audits are not very common. Your chances of avoiding an audit are good. But for many people, good is not good enough. And there are things you can do and things you shouldn’t do to avoid an audit.
Tom has developed a 14-step guide to tax practices that are likely to set you up for an audit. Here are his guidelines:
The main goal of many taxpayers is to avoid auditing the IRS’s federal income tax return. This has really been quite easy in recent years. For the last year for which information is available, 2019, only .4% of all declarations (40 out of every 100,000 declarations submitted) were audited by the IRS. The president has proposed stepping up tax enforcement efforts and the audit rate could be increased in the future. Here are some of the factors that can increase your chances of an audit:
- If your income is over $ 200,000 per year, the likelihood of an audit increases. The audit rate for people with incomes between $ 200,000 and $ 1 million is 1%, and for people with incomes over $ 1 million is 2.4%
- Failure to report all revenue. Third-party payers such as financial institutions, employers or clients report income paid to the IRS. If the taxpayer does not report this income in his tax return, he is likely to receive a notice from the IRS.
- Claiming higher than average detailed contributions and in particular large contributions for charitable contributions. Any deduction without cash in excess of $ 500 requires Form 8283 and may require an estimate.
- Operating a business.
- Claiming rental losses. Although you can claim losses of up to $ 25,000, this deduction amount is phased out for individuals with adjusted gross income (AGI) over $ 100,000 and is phased out if the AGI is over $ 150,000.
- Failure to file a tax return. Because the entities that pay your income report that income to the IRS, the IRS will probably know that you have not filed a return and are more likely to contact you.
- Deduction of losses incurred in the exercise of what the IRS considers a hobby.
- Request for deduction at home office.
- Taking an early distribution (before the age of 59) of a deferred tax retirement plan.
- Incorrect reporting of alimony that has been paid or received.
- Participation in cash transactions worth more than $ 10,000.
- Claiming a deduction for gambling losses.
- Failure to report to a foreign bank account.
- Request for exclusion of foreign income.
Finally, he says that “an important factor in dealing with tax matters is to state what you are entitled to, to keep documents to prove your business – and not to worry about an IRS audit.”
An almost useless factoid
From Alazar Moges
With 879 days in five missions over 17 years, Russian astronaut Gennady Padalka holds the record for the most time spent in space. Russian colleagues Yuri Malenchenko and Sergei Krikalev are following him after spending more than 800 days in space.
Source: National Geographic