How to stay out of trouble with the IRS
Felix Agbessi, President & CEO of My Accounting Partner, LLC has published an article in The Anointed News Journal of Chris Collins, Volume 18 Issue 9 November 2012 Edition, Page 14.
Here is a copy of the article.
It’s your responsibility! How to stay out of trouble with the IRS –
Tips for individuals and small business owners
Taxes are serious business, especially now. The automation of tax returns and our digital age has made it easier for the government to catch errors and inconsistencies. Many people who don’t enjoy the process depend on their tax preparers to keep them out of trouble and will sometimes submit their taxes without thorough reviewing, or having any understanding about what they actually say.
In the Bible, Hosea 4:6 (KJV) reads “My people perish for a lack of knowledge”.
During my career as a Tax Preparer, when I interviewed Taxpayers for the first time and they showed me their income tax return for the prior year, they used to say they didn’t know anything about their returns; “It was done by the tax preparer”. The taxpayer was unable to explain where the numbers were coming from and that is dangerous. What people don’t realize is, if it has your name on it, You are RESPONSIBLE, Period!
If you are ever audited, or the government decides to review your account, or they ask for additional information you could find yourself in BIG TROUBLE. If you can’t provide the information they need or you can’t explain where those number came from you could be signing yourself up for a headache! This principle is the same if you are doing the return by yourself.
Know What’s Expected! Your Income Tax Responsibility
The Tax Preparer should prepare your Federal and State returns based on information you provide. Although their work will not include procedures to discover irregularities or inaccuracies in the tax data you provide, they may ask for clarification of certain information, or additional information, so that they can prepare accurate and complete returns for you.
It is your responsibility to provide all necessary information related to your income and deductions for the tax year.
You are also responsible for maintaining appropriate records, such as official tax documents you receive, receipts and substantiation for your deductions, purchases and sales information for assets.
Please know that it is your responsibility to review your returns before they are filed to determine that all income has been correctly reported and that you have substantiation for your deductions. Filing your returns by the due dates is your responsibility.
The Burden of Proof Belongs to You
You should be able to justify or prove any entry, deduction, or statements on your tax return; this is called the Burden of Proof.
You must be able to prove any expenses that you have deducted. You should keep adequate records to prove your expenses or have sufficient evidence to support them just in case you ever have to give the IRS proof. You need to have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses or an item of income or a deduction, or a credit appearing on a return. For example, in order to claim a credit for child and dependent care expenses, you should be able to prove the person or organizations that provided the care to your qualifying dependents, their address, Tax ID, amount paid, etc.
Additional evidence is required for travel, entertainment, gifts, and auto expenses.
Did you know there are many hot spots on your return that can raise red flags by the IRS? Let’s talk about two, where I saw many taxpayers used to struggle with:
Claiming the home office deduction – If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. That’s a great deal. However, to take this write-off, you must use the space exclusively and regularly as your principal place of business. That makes it difficult to successfully claim a guest bedroom or children’s playroom as a home office, even if you also use the space to do your work. “Exclusive use” means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night. Don’t be afraid to take the home office deduction if you’re entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
Claiming 100% business use of a vehicle – Claiming 100% business use of an automobile is red flag for IRS agents. They know that it’s extremely rare for an individual to actually use a vehicle 100% of the time for business, especially if no other vehicle is available for personal use. IRS agents are trained to focus on this issue and will examine your records. Make sure you keep detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the IRS agent to disallow your deduction. As a reminder, if you use the IRS’ standard mileage rate, you can’t also claim actual expenses for maintenance, insurance and other out-of-pocket costs. If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.
If you want me to talk to you about how taxation issues may impact your future. Please contact Felix at My Accounting Partner at (856) 677-8052 or send your request by e-mail to felix@MyAccountingPartner.com
About the Author:
Felix Agbessi is the President & CEO of My Accounting Partner. He has more than 25 years of accounting, tax and business consulting experience in various industries. Additionally, he is an IRS Enrolled Agent, Authorized IRS e-file Provider, a Certified QuickBooks ProAdvisor and holds an MBA with a concentration in Accounting. He works with Individuals, Non-Profit Organizations and Small Business owners.
What is an Enrolled Agent?
Enrolled Agents (EAs) are America’s tax experts. They are the only federally-licensed tax practitioners who both specialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. These tax specialists have earned the privilege of representing taxpayers before the IRS by either passing a stringent and comprehensive three-part examination covering individual tax returns, business tax returns and representation, practice and procedure, or through experience as a former IRS employee. All candidates are subjected to a suitability check conducted by the IRS.