How To Avoid a Tax Audit
How to Avoid a Tax Audit Essential Information
Mention a tax audit and most of us will get a sick feeling in our stomach. Audits can be costly and time consuming. I know because we experienced one years ago. There are certain things you can do to avoid being audited and knowledge is power. What follows is what I wish I had known about estate planning and tax audits.
In 1995 my father died suddenly of a heart attack. His estate was complicated by the amount of land he owned, his outstanding debts and Kentucky’s Inheritance laws involving estate taxes. My brother and I were the heirs but within months of my father’s death we were notified by the IRS we were being audited.
Besides being in mourning over the loss of our father we were now about to experience the power of the IRS. We hired the best lawyers we could find and dug in. A year and thousands and thousands of dollars later, it was over. It is an experience I never want to repeat and hope you never have to endure. Especially when you have just lost a loved one.
The Number One Tip For Avoiding A Tax Audit
“Taxpayers who claim more than five percent of their wages as ‘unreimbursed employee business expenses’ in itemized deductions are more likely to have their returns examined. Those claims typically don’t stand up in an audit – and the IRS knows it,” said ARAG Network Attorney Rick Yandle.
In other words, if you claim 5% or more of your wages for business expenses that your employer did not reimburse you are likely to be audited.
Here are some rules from ARAG on the right way to deduct business expenses
- Make sure the expense meets deduction guidelines.
- Be clear on entertainment expenses.
- Know the rules for deducting gifts.
- Deduct “mixed-use items” when appropriate.
For a detailed explanation of what these 4 rules mean click here. Tax laws are complicated, so always seek the advice of a professional. Reach out to a tax professional on an annual basis to prevent mistakes and oversights. You can also visit the IRS website to learn more about deducting business expenses.
Preventing Problems is Less Painful Than Solving Problems
ARAG is a legal insurance company for individuals and employers. Oh how I wish I had known about ARAG when my dad’s estate was audited. I’d like to add that proper planning can go a long way towards preventing problems. What do you know about estate taxes? Most of us don’t know enough. ARAG has information on this too and you can read it by clicking here.
You should consider legal insurance if you:
- Feel overwhelmed when dealing with a legal issue.
- Don’t know who to turn to for legal advice or planning for the future.
- Want to save time when dealing with legal issues.
- Want to manage the risk of unplanned legal costs.
How Legal Insurance Works
Plans as low as $16.25 a month, depending on the plan you choose, provide you with easy access to ARAG’s network of attorneys (via phone and/or in-person) and our online library of common legal document templates.
Have you ever been audited? What was your experience like? Have you heard of legal insurance? Do you think it might be something that could help you?
Please visit the good folks at ARAG to learn more.