Summer is the season for tax audits. You may have forgotten all about the tax preparation process of last winter. Realistically, the chances for an individual audit are low - around 0.6 percent or about one in every 160 returns. However, tax preparers advise that it’s important for their clients to be aware of the triggers. Here are the things that the professionals pay attention to as they prepare your tax return:
Self Employment
If you're working for yourself, you are more likely to be audited than if you are working for an employer. The problem is that Schedule C includes so many potential deductions business owners can claim. Excessive deductions for things like business meals, travel, entertainment, vehicles, or showing a significant net loss will result in additional scrutiny. For example, The agency uses occupational codes to measure average amounts of travel by profession, and a tax return that shows 20% or more above the norm might get a second look.
Your tax preparer will ask for receipts and detailed records for all your business expenses. You can help by maintaining current and complete documents to support your deductions and consult your professional about changes initiated by the Tax Cuts and Jobs Act of 2017.
Home Office Deduction
Is your home office a space used “exclusively and regularly for your trade or business?” If not, avoid this one. The IRS is very successful in identifying taxpayers who claimed the deduction fraudulently.
Charitable Contributions
Many individuals are not aware that the IRS has deemed charitable deduction amounts that are proportionate for each income level. A claim that is too high compared to your income may get you into trouble.
Foreign Bank Accounts
The Foreign Account Tax Compliance Act (2010) requires overseas banks to identify American asset holders and provide information to the IRS. Taxpayers who have foreign accounts, especially in a “tax haven” country are carefully scrutinized.
Individuals must report foreign assets worth at least $50,000 on the new Form 8938. Previously, you just had to check a box that you had one. Now you have to not only check the box, but you also have to identify the institution and the highest dollar amount the account was at the previous year. Talk with your financial professional about the implications of having a foreign bank account.
When it comes to financial planning, your tax professional is in a unique position to give you advice on asset building strategies. Why not take advantage of the time you spent preparing for your tax filing and reconnect with your CPA to develop a financial plan for building wealth.
Charles P Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. Our job is to help you know about all the available tax opportunities that meet your individual needs and circumstances. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more: (202) 789-8898