No one likes a tax audit, but for the foreseeable future, they will be a fact of our civilization. At best, tax audits are time consuming and frustrating; at worst, they are hideously expensive. There is no way to completely avoid audits altogether, but there are ways to reduce the risk of an audit or make them more bearable. Additionally, your tax attorney can offer advice about avoiding or surviving an audit.
For wealthy taxpayers, there may be no way to avoid an audit. The IRS, as part of their law enforcement mandate, will look to return the most money to the federal coffers. That means placing higher income tax payers under increased scrutiny. The best thing you can do is to be proactive and prepare ahead of time. Having your records in order, accessible, and current is decisively important. Be vigilant about rigorously documenting major financial transactions including large or recurring cash transactions, charitable donations, or tithe. The IRS will also take special note if your deductions for charitable or business expenses are unusually large. Make sure you have those well documented.
Above all, do not fail to report income. The IRS computers are getting better all the time at matching up records from all the documentation the IRS receives. Even mistakes and clerical errors can be flagged by the IRS and land you in an audit. If you ever attempt to hide wealth, this will be more than an inconvenience in case of an audit; it could mean criminal charges. It is not illegal to place money in offshore accounts such as in a Swiss bank or on Caribbean island, it is just illegal to not disclose this income to the IRS. If you have a question about tax laws and your responsibilities regarding them, be sure to contact your tax attorney.
If you are a small business that’s reporting year over year losses you should probably expect IRS scrutiny. The IRS might be concerned with the legitimacy of your business. This goes double for an expensive hobby. Hobby losses are not tax deductible. The IRS may not look favorably on your comic-trading “business”. Be prepared to justify this expense ahead of time. Your tax attorney can help prepare your small business for potential audits.
For more information about how your tax attorney can help you please contact us at 913-735-4829