At the risk of sounding like a CPA, I advise you not to fall into the trap of complacency now that the April tax deadline is behind you. Your attention is still needed.
Whether you are looking to next year, or still gathering data from the past year, there are important points to consider. Filing your tax return is a complex business and you should make every effort to take all the deductions to which you are entitled, but remember that documentation is absolutely essential to upholding those deductions should your return be reviewed by a taxing authority.
The IRS is highly focused on preventing fraud, which is on the rise, and has implemented several methods to weed out the bad apples. IRS computers detect potential fraud by comparing many items in each return to certain “standards.” If your data falls outside of the parameters, it increases your chances of being audited.
The “red flags” are what one might expect — self-employed workers filing Schedule C, artificially low salaries, unreported income, and exceedingly high charitable-contribution deductions, high levels of income, and home-office deductions are tops on the list. Some taxpayers have been said to be banking on the idea that a smaller budget and fewer employees at the IRS would result in fewer audits this year.
To a quality-minded CPA, this sounds a bit like roulette, and not a great overall approach.
I can’t help but think that a smaller number of audits means a drop in federal revenue, and fewer IRS employees translates into less help for taxpayers seeking assistance. And what about controlling identity theft and complex changes in tax law? Doesn’t it stand to reason that if all the non-filers and dishonest filers paid their dues, perhaps tax rates could be lowered for everyone?
If you have already completed filing your return and believe there was an error, you could file an amended return to reflect the correction and stop the clock running on certain additional charges. If you are one of the procrastinators or have a complex tax situation that needs to be attended to, do so now. By waiting to pay tax balances due, additional charges for interest and penalties can add up quickly.
If you’re flirting with the idea of not turning in your taxes at all, you may want to think again before using what the IRS considers to be “frivolous” tax-evasion arguments, like claiming that tax forms are an invasion of your privacy or that your state isn’t technically part of the United States. The IRS does not find these amusing, and you could end up going to court and being slapped with significant penalties.
Want my advice? Buckle down and get the filing beast behind you to ensure you have covered all your bases from a deductions perspective and that all income is properly reported to your CPA.
Gail Kinsella is a partner in the accounting firm of Testone, Marshall & Discenza, LLP, and serves as the president of the New York State Society of Certified Public Accountants. Contact Kinsella at firstname.lastname@example.org