More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
There are certain elements in tax returns that just set off alarm bells for the IRS. Naturally, neither you nor your clients want any of them in any returns that will actually be submitted—now or in any tax year. So here are five of the top triggers that will say to the IRS that someone hasn’t done his homework, courtesy of Steven Klitzner, a qualified tax attorney from Florida Tax Solvers.
5. Haven’t We Met Before?
If you’ve been audited before, there’s not much you can do to disinterest the IRS in any future returns you may submit. However, there is one thing you can do to lessen its scrutiny: change preparers. A tax preparer whose clients already have been subject to audits will be more likely to attract audit attention on their future returns.
4. The Devil Is in the Details—and So Is the IRS
Everything in life doesn’t fit into neat little boxes, and sometimes that includes the answers on an IRS form, too. If there was something weird or complicated about your, or your clients’, tax situation for 2011—an unusual business deal or a tax bill you can’t pay all at once—spell it out when you submit the return and you’ll be much less likely to draw the auditors down on your head. (In the latter case, be sure to include Form 9465, the Installment Agreement Request, along with a check for however much you can afford.)
3. Love Thy Neighbor, but Not Too Much
If your tax return includes charitable contributions that positively overflow with the milk of human kindness, the IRS will come knocking on your door to find out if you really were that generous in comparison to what you earned. You may indeed have decided to emulate St. Francis and give away your entire fortune (or what feels like it), but be prepared to prove it.
2. Do Your Homework
During the economic turbulence of the past few years, you may have shut down your office and opened up shop out of your home. If so, you could indeed be entitled to a home office deduction—but be wary of how much you claim for it. A business that produces little income will not, in the IRS’ estimation, sustain an office with a hefty outgo—so go easy on the Matisses, Waterford chandeliers and Aubussons.
1. Sorry, Wrong Number
If you look at numbers all day, you know when they’re just not right. Well, so does the IRS, and if you submit a return with the digits transposed in a Social Security number or your totals don’t match the figures in the columns above them, they will notice. Check and recheck your numbers, including W-2s and 1099s and whether they match what you put down on the 1040.
These tips may not save you from the auditor’s eye, but they will reduce the number of possible errors that could attract attention.
See AdvisorOne’s Special Report, 22 Days of Tax Planning Advice for 2012, throughout the month of March.