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Misconceptions and Audit Proofing Strategies (Part 1)
You know that fear. It's the one that makes everyone paranoid around tax filing time. So many people let the FEAR of the IRS cause them to even overpay their taxes. The IRS's biggest weapon is FEAR, but this should not stop you from taking a legally aggressive position to save more of your hard earned money from Uncle Sam. Tax expert, Al Aiello of www.AlAiello.com, was particularly passionate about this subject and here's a review of some of his tips for those who fear the IRS and what to do about it.
Gray areas and being aggressive does not get you in trouble. Those previously convicted by the IRS got into hot water not because they exaggerated their charitable donations or took an aggressive position. It was because they committed serious FRAUD such as hiding millions in unreported income. Many areas of the tax law are gray. The gray areas are mainly with deductions. Therefore if you report all taxable income and you are legally & discreetly aggressive with your deductions, it is very unlikely you are going to get into any serious trouble with the IRS. With the IRS you do have rights! Your bill of rights is IRS Publication number 1, "Your Rights as a Taxpayer"
Approximately 1.5% of all taxpayers are audited every year. Despite this relatively small number, the IRS still causes many people to shake in their boots when contemplating the chance of an audit. The odds are low that you would be picked for an IRS audit because the IRS does not have enough personnel and resources to examine every tax return. Your chances of being audited are higher depending on income levels, profession, transactions and tax deductions. Here are some tips on high risk areas for audits, so you can ensure you are not on that list.
High-Risk Tax Audit Areas
Your chance of being audit rises as your income increases. Here are some red flags to the IRS:
The Difference Between Tax Preparation and Tax Planning
Tax preparation for the March 15th or April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren't due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done early. They often take some advance planning. Getting a head start could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
A. Reduce Your Tax Liability
By taking certain steps now, you can reduce the size of your tax bill otherwise due when you file your return. You do not want to overlook any deduction or credit that you can take to lower this year's tax bill. Managing what income you recognize or defer also can pay dividends as you focus on balancing your tax rates.
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