Be mindful now to avoid audits, penalties later

  • By Reid Kanaley The Philadelphia Inquirer
  • Friday, December 28, 2012 5:11pm
  • Business

Here’s a group of 1 percenters no one wants to join: the group of U.S. taxpayers to be audited by the Internal Revenue Service next year. Be mindful now to avoid audits and penalties.

Certain types of writeoffs are going to raise red flags with the IRS, says this article at U.S. News &World Report. It suggests that you should expect the tax collector to verify such things as a claimed Earned Income Credit or an adoption credit. More important for many taxpayers is the need now to collect receipts for charitable gifts. If you file a return next year after simply guessing at the amount of your contributions to church or other charities, and you get audited, the IRS will disallow the deduction. bit.ly/z3s9gR

“Making too much money” is the enviable topper to a Kiplinger list of a dozen “audit red flags.” If an overly fat paycheck is not your problem, there are plenty of other issues that can trip you up, including off-the-wall deductions for money you spent on a hobby, or simply running a cash business. bit.ly/e2OMvi

The IRS hosts something called the Taxpayer Advocate Service, which might sound like a case of the fox watching the henhouse. Still, the service, which reports independently to Congress, was set up as a place to turn when individuals feel they’ve hit brick walls with the tax-collection agency. You can go to this site for links on how to ask for help or to report what you might think is a systemic problem at the IRS. www.irs.gov/advocate

Tax-law expert Dean Zerbe posted this Forbes item on avoiding audits. He cites a taxpayer advocate’s report to say good records are, bottom line, the best way to be sure you are paying what you owe and can defend your figures if it comes to that. “It is not a helpful story if the taxpayer points to an empty shoe box as holding the justification for the position taken on a return,” Zerbe notes. onforb.es/zHJ4k4

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