Posts tagged return

Congress passed a law that is supposed to be in one of the “sensitive” Internal Revenue Service income. You know, not too thin, medium machine taxation.

Hmmm. . . . What do you think?

A few months ago, (we call him Mr. Jones), a client of mine got one of the “love letters” IRS those who require more information about his return and IRS wanted to meet Mr. Jones personally discuss the situation.

Mr. Jones (owner of a small local company) was required to report to the local office of the IRS with all its files. The IRS was questioning the legitimacy of several business deductions – and the IRS does what it is legally authorized to do -. Require the taxpayer to prove that those deductions were valid

It turned out that Mr. Jones lost control and landed due to the IRS a substantial amount of money – taxes Further, plus penalties and interest for late payment of tax. Why did Mr. Jones lost the audit? Mr. Jones made two “classic” taxpayer mistakes:

ERROR # 1: “no receipt, no deduction

Mr. Jones lost several deductions simply because it is not intended to show proper documentation for deductions.

What I mean by “documentation”?

Now, if you need the IRS to justify a deduction on your tax return, they are able to written proof that the deduction really happened. The easiest way is to prove a deduction to hang on:

a />) The receipt or invoice, and
b) proof of payment, a canceled check, receipt or credit card statement can.

Jones has reported numerous deductions for which he simply did not have documentation. No receipts, no canceled checks, nothing. It turned out that Mr. Jones one of those “cash guys” was . Maybe you know what kind of guy I’m talking about – he never wrote a check for his life, just make a wad of banknotes around the pocket. He paid for everything in cash, and never kept any of his income.

Would sit every year, “remember” with his wife and how he has moved on. no way to prove that each of them This, of course. He had spent only a “feeling” how much money, and he had his business for so many years that he just “knew” how should we do some things at cost.

Now it is the type of taxpayers that the IRS loves! It is true – if you can not prove that you paid for something (with receipts, invoices, canceled checks, etc. ) then you run the risk of losing that deduction in the case of a ‘verification
. br /> One of the most common questions I am asked by clients is: “I know that I I paid for something, but I do not have a receipt if I still deduct the report .. ”

My answer is usually: “You only need a receipt if you have checked.”

At first, people do not know if I’m joking or not. Well, I’m going to comment on my tongue firmly planted in cheek, but it really is much truth in that. If you do not have documentation to prove a deduction, you can still report the deduction (if you want), because only the trigger when you take a test to prove it.

But if you’re audited, knowing that undocumented deductions on the return, ready to lose the deduction. Just enough

And here’s another major mistake that Mr. Jones did:

Mistake # 2: BOGUS DEDUCTIONS

It is Mr. Jones is not completely honest with me about some of his prints. He said that the deductions are not only real reductions. Here’s an example: Mr. Jones owned several apartment buildings. These buildings, of course, maintenance and repairs. Many times Mr. Jones would pay for this is the work itself, rather than taking someone else’s work.

Now, Mr. Jones said he would pay someone to do the job he has to do yourself. and then report this amount as a deduction, even if he does not pay someone to do the work

In other words, Mr. Jones withdrew the value of his time – which is
is an important point – you can never be allowed to deduct the value of your time to the work you’ve done. You actually have to pay someone else to do on the labor market.

If you need a letter from the IRS for additional information, you have nothing to worry about when exactly the opposite of what Mr. Jones did. If you can properly document your deductions and assuming you do not have false information, you will pass the test with flying colors.