Oftentimes, my heart goes out to those who are under an audit, the pressure on the client is almost unbearable. The client sees many options that absolutely do not exist, except in their minds right, i.e. Examples: “My mother was audited five years ago; is that why they are pulling me in now?” Or, “my great grandfather owned a funeral home and never paid taxes, maybe they are trying to make up for it on me.” Here is one of my favorites: “I was completely broke when I put my nephew on my tax return; but my sister said I could, so that’s okay right?” Wrong, that is not right or okay, unless you meet specific tests. Let’s attempt to stay away from any unnecessary scrutiny, these pointers may help.
Use a Calculator: The single greatest reason people fall under the ‘big light’ of the IRS, is that the math is wrong. While most of us are innocent, but should you not understand deductions or the complexity of even debits to the left and credits to the right, you could blow the whole tax return. Additionally, if you use tax software it will provide you with the correct answer on the drop down tab; but you must know which answer/option to use. Tax software companies are required to give you all options. But you have to choose.
Explain Those Unusual Deductions: I recall during my 33-year tenure at the IRS that we spent days going through tax returns just to ascertain if the deductions were in line with the rest of the return. At first I pulled every deduction over to give them a ‘tax ticket’, and then I learned how to evaluate the deduction in light of the entire return. More importantly if the preparer made a note of explanation; then that return ‘usually’ got a pass. Heads up: generally anything you write or note is better than nothing.
Don’t Boast on Facebook: The Revenue Agent or Revenue Officer has been handed a fertile ground of information in detecting your life style, and having a good time with it. There are snickers going on all over IRS as you post and display on Facebook. Clients may want to show off that new car or brag about money that they won and sometimes even how much they have won. Give yourself a break and do not be so generous with your information on social media. The agents and officers of IRS read Facebook, Instagram and the like. Tone it down a notch or three.
Self-Employed – Be Reasonable: The IRS believes that a huge part of the tax gap, i.e., the amount of tax owed versus what is actually paid is found in “Schedule C” or self-employed taxpayers. According to the latest IRS data individuals who are self-employed and earn between $100,000 and $200,000 annually are audited five times more than the average employee. The reason according to the IRS is that the self employed individual has more options for putting down unsubstantiated deductible amounts. The self-employed often do not make estimated tax payments and above all according to this writer, is this: They do not have a professional bookkeeping system. They think they can keep up, but as a general rule, this is not true. And should the self-employed person be called to an audit; and submit all these tiny receipts, you very well may not be given credit for all you have expensed. Heads up; way up, IRS agents “like order.” They do not like to “MAKE order.” Bring in your records professionally; which is in order.
Alma M Scarborough, EA, Tax Fellow
Scarborough’s Tax Affair, Inc.
703 N 13th Street, Unit 208
St. Louis, Mo., 63103
