Financial Friday

Tax Time!

Here is a great article I found from Clark Howard on 12 red flags that will get you audited.  I’m using his list but changing it to the top 12 reasons you need a good accountant.

12.  You make too much money.  The government says if you make over $200,000 a year, you are an evil rich person that needs to “Pay your fair share.”  Get an accountant, you can more then afford it.

11.  Not reporting taxable income.  If you get a 1099 for any amount, you have to claim it as income.  Most people will say file what is on the 1099 and deal with discrepancies later.  You really need a tax accountant’s help.

10.  You give a lot of money to charity.  The IRS thinks you are trying to hide income as a tax deduction.  If you claim too much as a percentage of your income, then they will look more closely at your return.

9.  Claiming a home office deduction.  I think this one can get you in trouble all over the place and it’s the one deduction that I don’t do myself because I don’t want to deal with it.  If you do, make sure it’s legitimate.   Talk to your accountant (yes you need one) to ensure that you really can write off your home office.

8.  Claiming rental losses.  This one should make them very busy the last couple years, but make sure you get an accountant to file a loss correctly.

7.  Deducting business meals, travel, and entertainment.  This one is abused and probably should be a red flag for an audit.  I know a business owner that decides where they want to go on vacation and then finds something for them to do while they are there to make it a write off.  If you have travel and entertainment expenses that go with your business or job, make sure you have an accountant help you properly document it.

6.  Claiming a 100% business use of a vehicle.  This is another great way to hide some income, so the IRS will look more closely at you for it.  My suggestion is to write off mileage instead, but I’m not an accountant, you should get one.

5.  Writing off a loss for a hobby.  Yet another way to try and hide income from taxes.  Be careful, if you aren’t showing any revenues in your “business” loss, you will probably be looked at closely.  Get an accountant’s help to ensure you really have business losses you can claim against other income.

4.  Running a business where almost all money is cash.  When I worked in construction this is how all the small companies wanted to operate so they wouldn’t have to claim the income.  This is how Al Capone finally when to jail.  You need an accountant.

3.  Not reporting a foreign bank account.  Yes most banks around the world deal with the American IRS, so be careful.  When in doubt you should probably report it, but you need an accountant to know for sure.

2.  Engaging in currency trading.  Personally I think this is from a speech the President gave his first year in office.  That he was going to catch all those tax cheats that were working as contractors overseas.  Most of the guys I know over there were dealing in currency on the Forex (Foreign Exchange) market or buying currency from the host country.  If you are doing any trading in currency, you need an accountant.

And the number one reason for getting audited is;

1.  Taking excessive deductions.  The IRS has a pretty good idea of what normal deductions for your business are.  After all, they have seen them all.  So if you are going to use a lot of deductions you need an accountant. 

The bottom line; every year I’ve used an accountant and the two years I’ve been audited they have been worth three or four times what I paid them!  The first year I got a letter from the IRS about something being wrong I was scared to death.  I called my accountant, he filed the needed paperwork and I was done.

Stay Safe

Ben

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