Carter Financial Group and Carter Tax Incorporated provide full service business, accounting and tax consulting services to clients to recognize their financial goals and maximize profit potential.

Tax Day is right around the corner.  Do you know how to defend your deductions?  Jason Stralka, Carter Tax Incorporated’s Tax Guy, shares his insight below.

HOW TO DEFEND TAX DEDUCTIONS
-Jason Stralka

In this section, we will be discussing allowable deductions, how to properly document tax deductions and, if you ever get audited, how to defend your deductions. 

Can you deduct mortgage interest? Can you deduct health insurance premiums?  What meals, if any, can be deducted? Can vehicle insurance be deducted?  What about vehicle interest?  What taxes are deductible?  Knowing the tax law can potentially save you thousands of dollars.  However, not knowing the tax laws can cost you even more.  By deducting a nondeductible expense on a tax return, a taxpayer will pay less tax on the tax return.  However, once the IRS catches it, the taxpayer will need to pay the principle back in with additional penalties and interest.  As of 2010, the IRS is on a three year audit trail.  Three years of penalties and interest can result in an enormous increase in taxes.  Consider this example, a taxpayer is in the 28% tax bracket and chooses to deduct $10,000 worth of expenses in 2006 that should not have been deducted.  He lowered his 2006 taxes by $2,800, but the IRS found the mistake in 2009.  The taxpayer will now need to pay back the $2,800 that he saved in 2006 with penalties of $504 and interest of $586.  This example illustrates the importance of knowledge when preparing tax returns.  If you have any questions, please contact your tax professional before filing your tax return.                               

Proper documentation of receipts for tax deductions can save you thousands of dollars if you get audited.  Following one basic step can make this easy:  STAY ORGANIZED!  Every business receipt you use for a tax deduction should have thorough notes on it.  Include on the receipt what you bought, what it is going to be used for, and make sure the date purchased is visible.  If you have a receipt that includes personal items and business items, circle or highlight the items that are for business use.  Generally, if a receipt is unreadable, the deduction cannot be used, so don’t crumple up your receipts.  A good rule of thumb for an audit is that it is always better to be safe than sorry, and it starts with the documentation.  Your tax professional can further assist you in an audit situation if it arises.

An audit can be the most horrifying event in a person’s life.  The idea of the most powerful organization in the country analyzing your books for accuracy and detail, knowing they can assess heavy fines and even seize property and other assets can be a little scary.  However, if you are meticulous with your documentation and thorough when completing your tax forms, you should have nothing to worry about.  Remember that the auditor is in total control of the situation, so don’t be disrespectful and do comply with their demands.  If you are unsure of what to expect or would like more recommendations based on past experiences, consult your tax professional. Call us today at 907.569.3873!