Avoid your IRS-being-audited club!
When it comes to exclusive clubs, one of the most difficult to integrate is the elite group that is audited by the Internal Revenue Service. Not many people come in (and for that matter, come out), but if you do, hold on to your hat. Plus your house, your salary, your retirement checks, and anything Uncle Sam can sell to pay off your surprise debt. Audits have gone down in recent years because Congress and / or the White House cut the IRS budget and number of employees. All the while adding extra duties for IRS employees and oh yeah, there’s that long downtime for a global pandemic.
But things are about to change. The IRS is likely to get more money and more help. If you like the idea of everyone paying their full share, that’s great news. But if you are chosen for an audit, fasten your seat belt as it can be a savage and uncomfortable ordeal. Even if you come out with a good health check. Otherwise, consider the disadvantages of mandatory downtime in a federal enclosure. The best thing to do with an audit is to learn not to make yourself a target. That’s the subject of today’s Your Turn show, featuring guest Tom O’Rourke. He’s an estate and tax lawyer – and he’s been a lawyer with the IRS for a long time. Watch the 10 p.m. ET show stream here or on the 3 p.m. radio in the DC area. The good news, he says, is that audits aren’t 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 can prepare you for an audit. Here is its guideline:
A primary goal of many taxpayers is to avoid having their federal tax return verified by the IRS. It has really been quite easy over the past few years. For the most recent year for which information is available, 2019, only 0.4% of all returns (40 out of 100,000 returns filed) were audited by the IRS. The president proposed to increase IRS enforcement efforts, and the audit rate may increase in the future. Here are some of the factors that can increase the chances of an audit:
- If your income is more than $ 200,000 per year, the likelihood of an audit is increased. The verification rate for people with income between $ 200,000 and $ 1 million is 1%, and for people with income over $ 1 million it is 2.4%.
- Do not report all income. Third party payers such as financial institutions, employers, or customers report income paid to the IRS. If a taxpayer fails to report this income on his tax return, he is likely to receive a notice from the IRS.
- Request higher than average itemized deductions and, in particular, large deductions for charitable contributions. Any non-cash deduction over $ 500 requires the filing of Form 8283 and may require an assessment.
- Operation of a business.
- Claim rental losses. Although you can claim losses of up to $ 25,000, this deduction amount is phased out for people 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 you income report that income to the IRS, the IRS is likely to know that you have not filed a return and is more likely to contact you.
- Deduct losses incurred in pursuing what the IRS considers a hobby.
- Claim a home office deduction.
- Take an early distribution (before age 59 and a half) from a tax-deferred pension plan.
- Incorrectly reporting support payments paid or received.
- Carry out cash transactions over $ 10,000.
- Claim a gambling loss deduction.
- Failure to declare a bank account abroad.
- Request the exclusion of income earned abroad.
Finally, he says, “An important factor in dealing with tax matters is claiming what you’re entitled to, keeping records to prove your activities – and not worrying about an IRS audit.
Almost useless factoid
By Alazar Moges
With 879 days in five missions over 17 years, Russian astronaut Gennady Padalka holds the record for the longest time spent in space. His Russian compatriots Yuri Malenchenko and Sergei Krikalev follow him after also spending more than 800 days in space.
Source: National Geographic