Most Americans are afraid of going through an audit. The following are the most common mistakes that a taxpayer can make that might result in an examination.
Too Many Credits, Too Many Deductions
One should begin to think of an income tax return as the story of their income for a particular year. As such, there are certain things that are probable, and others that aren’t.
If you have $100K in income, you shouldn’t have $80K in charitable deductions. If you did, how would you eat? Make sure that the story you tell is believable.
Not Enough Income
The IRS gets a copy of almost all of the items that go into creating your income for the period. They get copies of your W-2’s, K-1’s, and 1099’s to name but a few.
When you file a return, the IRS will match the income reported against copies of the forms they have on file. If you miss one, it will cause a red flag.
The severity of the omission will determine IRS compliance action. If it’s minor, they’ll send out a letter correcting the problem and instructing you to pay the additional tax. If it’s severe, they’ll send out an auditor to do a full audit.
Refundable Credits
The Earned Income Tax Credit is probably the number one reason that lower income returns get audited. There’s so much abuse in this regard, that practitioners are required to provide a due diligence checklist whenever we prepare a return that includes this credit.
Round Numbers
When preparing a return, please be smart enough to use real numbers. If you estimate deductions using round numbers, the reviewers at the Service will notice.
Think about it. The chances of a number actually rounding to the nearest hundred is one in a hundred. If all or most of your deductions end in “00”, then there’s probably a problem.
The easiest way to not get audited is to do your return correctly. I haven’t had one of my returns audited at the Federal Level in the last 12 years. Why? Because we do them correctly.
Let me leave you with this.
Last Friday Afternoon, I waited in a lounge area with most of my inlaws, in anxiety and anticipation. My wife, her mother JoAnn, and her four siblings had gone into the Funeral Chapel to say goodbye to my Father-in-Law, Thomas Joseph Burke.
When it was our time to proceed, I immediately noticed the pictures of a life well lived. Flowers decorated the room as far as the eye could see. The coffin had the Stars and Stripes on one side, with the Flag of the United States Army on the other.
We went up, one family at a time, to say our goodbyes. I touched Tom’s cold, cold hand, crying as I prayed. And it was simply, beautiful perfection.
His friends and neighbors began coming in as my wife, her siblings, and my Mother-in-Law formed a receiving line. People he’d known for most of his life came to somberly pay their respects.
The Knights of Columbus stood honor guard for their fallen brethren. Tom was a Grand Knight in their order. They stood on both sides of the casket. Adorned with red, white, and blue sashes, their ceremonial swords were drawn, as they stood at attention. And it was simply, beautiful perfection.
The priest then led those assembled in the Rosary. At the end, the Knights read several certificates that would be forever entered into their bylaws naming Sir Thomas Joseph Burke as a good Christian and an exemplary Catholic.
At the end, one of our cousins, a Knight from the Mason City, Iowa Chapter, presented my Mother-in-Law with a paten and chalice engraved with his name that will be used by either a new congregation or a missionary to further the faith. And it was simply, beautiful perfection.
The next morning we gathered at the church and processed behind the casket as my nephews bore the pall. My daughter, and the rest of my nieces sang Amazing Grace as part of the ceremony. My Brother-in-Law, Joseph, sang the Our Father a capella. Julie sang How Great Thou Art.
As my Brother-in-Law, Tom, the fifth in his family of that name, eulogized his father, there wasn’t a dry eye in the congregation. I’d only known Tom for the last 27 years, but I remembered what a good man he truly was. And it was simply, beautiful perfection.
As we arrived at the graveside, an honor guard from the local VFW stood at attention with rifles at the ready as we filtered in. The Sergeant gave the commands as they fired three volleys with their M-1 Garands.
A Bugler played Taps as an active duty Private and Lance Corporal from the Army removed our flag from the coffin, slowly and methodically folding it thirteen times into a perfect triangle. The Corporal then presented it to JoAnn on behalf of the President and a Grateful Nation. And it was simply, beautiful perfection.
After the funeral we proceeded to the Windmill Museum, a place that probably wouldn’t be there without his efforts. We drove down Burke Blvd, a street named in his honor many years before, to park our cars.
The Ladies Guild from the church presented the lunch, and those Indiana girls know how to sling the hash. As I sat there, in a place forever in his debt, I could not think of a better conclusion to the day’s events. And it was simply, beautiful perfection.
In times like this, I remember the prophetic words of Dr. Seuss. “Don’t cry because it’s over. Smile because it happened.”
Tom, may the Lord bless you and keep you. May the Lord make his face to shine upon you and be gracious to you, May the Lord lift up his countenance upon you and give you peace.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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