General Tax Tips
Name And Address Change
Using the peel-off name and address label on the back of 1040 booklet sent to you by IRS will help eliminate errors speed up your return processing. If the address on your label is not your current address, cross out the old address and print the current one. If you plan to move after you file your tax return, notify the IRS of your new address using form 8822.
If your name changed due to marriage or divorce, report the change to your local Social Security Administration office before filing your tax return. This will prevent delays in processing your returns and will speed up your refund.
Filing Status
More than one filing status can apply to you. Chose the filing status that maximizes your refund. The ones that usually give you the lowest tax are listed last.
- Married Filing Separately
- Single
- Head of Household
- Married Filing jointly or qualifing widow(er) with dependent child
Head Of Household
You may file as Head Of Household if you had a child living with you, even though you lived apart from your spouse during the last six months.
You may also file as Head of Household if you were unmarried, but you provided a home for people who were affected by midwestern storms, tornadoes and flooding. See pub 4492-B for details.
Avoiding A Tax Audit
Audits are often random but many audits are triggered by the contents of the tax return. The following are red flags that can cause your return to be picked for a review.
Don't Overestimate Donated Amounts
The IRS encourages individuals to donate goods like clothings, automobiles, food,..to charities, for which the donor is offered a tax deduction based on the value of the goods donated.
As a general rule, the IRS prefers that the individuals value the items donated at between 1% to 30% of the original purchase price. Anything more than this may increase the chance of being audited.
Avoid Math Errors
Many returns are selected for audit due to basic math errors. So when filling out your tax return (or checking it after your accountant has completed the form) make sure that the columns add up. Also make sure that the total dollar value of capital gains and/or losses are properly calculated. Even a small error can raise eyebrows.
Remember To Sign Your Return
A lot of taxpayers simply forget to sign their tax returns. Failure to sign the return will almost guarantee that it will receive additional scrutiny. The IRS will wonder what else you might have forgotten to include in the return.
Report All Earnings
It is vital that you report all income (including cash) that you received throughout the year from work and/or from the sale of an asset (such as a home) to the IRS. If you fail to report income and you are caught, you will be forced to pay back-taxes plus penalties and interest.
Avoid Excess Home Office Deductions
Be careful with home office deductions. Excessive or unwarranted deductions can raise red flags. In addition, large deductions in proportion to your income can raise the ire of the IRS as well.
For example, if you earned $50,000 as an accountant (operating from home), home-office related deductions totaling $30,000 will raise more than a few eyebrows. Trying to write off the value of a new bedroom set as office equipment could also draw unwanted attention
Deduct only items that were used in the course of your business.Income Thresholds
If you earn more than $100,000 each year, your odds of being audited increase exponentially. In fact, some accountants put the odds of being audited at one in 72, compared to the one in 154 odds for people with lower incomes. So, make sure your numbers are as accurate as can be.
Small Business Ownership
Small business owners are an easy target - particularly those with cash businesses. Bars, restaurants, car washes and hair salons are exceptionally big targets, not only because they deal in so much cash, but also because there is so much temptation to under-report income and tips earned.
Other actions that go part and parcel with business ownership may draw unwanted IRS interest too, including putting family members on the payroll and over-estimating expenses.
If you own a business, don't "push the envelope". If you want to stay in business and avoid the scrutiny of an audit, it's best to remain on the straight and narrow: be as accurate as can be in filing your taxes.