These 5 Tax Moves Could Get You Audited in 2016
The IRS performs audits when a tax return seems inflated or its numbers seem off. In most cases, it is a simple mistake on the preparer’s part and is quickly remedied. To avoid being audited, try not to make these five mistakes.
Big Charitable Donations
When making large charitable donations, make sure that you are donating to a 501(c)(3) organization. Only donations made to these organizations are tax deductible. Larger donations used for tax deduction purposes are scrutinized a bit more than smaller donations.
Being Rich
Being wealthy alone is reason for audit. The IRS is going to make sure that all of your earnings are reported and that major reported expenses are justified. Of course it’s not a bad aim to acquire wealth, however if you do become rich you should be aware that you are more likely to face an audit.
Sold Investments
When you sell an investment, your broker is now required to report the cost basis directly to the IRS. You must report the exact same numbers that your broker submits to the IRS. If the numbers do not match exactly there is a high probability of facing an audit.
Withdrawing from Retirement Funds Early
When you withdraw from a retirement fund early – i.e. before age 59 and a half – you must pay an additional 10-percent tax. Moreover, withdrawing early can also trigger an audit in certain cases.
Auto Mileage Usage Reports
Improper reporting of mileage when using your own vehicle for work purposes can trigger an audit. You are permitted to deduct $0.575 per mile for work travel. The vehicle must be used solely for work purposes to qualify.
The best advice is to make sure your figures are correct and that you report absolutely everything. Leaving out the most miniscule detail can trigger an audit. Keeping immaculate records throughout the year helps prevent these mistakes.
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Reasons to Reconsider Paying Your Taxes by Credit Card
Paying taxes with credit cards seems convenient due to the ability to make smaller payments to the credit card company. However, the IRS also offers payment plans, often with a lower interest rate and you are able to select how much you can feasibly pay each month. Overall, credit cards may be the easiest way to make the large payment, but it definitely has its drawbacks.
Missing Payments
As long as all of your payments are made on time, you should not experience higher interest. This changes when you miss a payment. The credit card company is going to charge you a higher rate of interest on the next payment you have to make.
Higher Interest via Credit Card Company
The federal government does charge interest when a payment plan is required to pay tax debt. This is often lower than the interest rate on your credit card. Many taxpayers obtain a new credit card with an introductory interest rate period. The hope is often to pay the tax debt prior to that introductory interest rate period expiring, but that does not always happen, thus leaving you paying more in the end.
Bottom Line
When you realize that you are going to have to pay taxes and not receive a refund, it is important to decide what you can pay each month. If your options are better paying the IRS via their payment plan, that is the better route to take. Those that owe small amounts really are better off working with the IRS directly. The IRS offers a 120-day fee and interest free period to pay your owed taxes.
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What Happens if Your Tax Software Has a Data Breach?
Millions of people each year submit their tax return via online tax software programs. Tax software is typically secure, but is in no way completely foolproof. There is always the chance that there could be a data breach. More and more industries are dealing with identity theft and data breaches every year. Here is how to deal with a breach if you are in one.
Freeze Your Credit
One of the main reasons that people hack into tax companies is to receive personal information. You can put a freeze on your credit if you are concerned about someone using your social security number to get credit products in your name.
Track Your Return
If someone is able to breach tax software and extract information, they may be trying to submit your tax return and claim a refund in your name before your actual tax forms go through. If your return is rejected because it has already been put through the system, get in contact with the IRS about identity theft to report the issue.
Monitor Your Refund
Another reason for tax software data breaches is the interception of income. Be sure to keep an eye on your refund and make sure it is still going to the correct bank. You can also put the refund on a prepaid card if you are concerned about a possible breach allowing thieves to gain access to your personal bank account.
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Guide to Understanding Your 2016 Tax Forms
Though it may seem like a daunting task, doing taxes is not necessarily a frightening activity. With a little preparation, you can easily figure out taxes on your own and get your federal and state taxes prepared. Let’s go over the tax documents that you will need in order to file your taxes.
W-2s
Most people who work will receive either a W-2 or a 1099 form. A W-2 form is used for most workers who are considered employees. If you are a W-2 worker, chances are you were having taxes taken out of your check while you were working. With one form of income and a W-2, you can fill out a 1040EZ form to complete your taxes.
1099s
If you are a 1099 worker, or an independent contractor, you will be considered self-employed. You will need to declare all of your income from each 1099 form, along with your business expenses and losses. Business loses can be money that you were not paid; business expenses include travel and the materials required to perform your job. If you work from home, you may also deduct your home office space on taxes. You can choose to itemize your deductions or select the standard deduction. Be aware that self-employed persons are charged a much higher tax rate than employees, so you need to keep track of your taxes and make estimated tax payments throughout the year to avoid being penalized.
Conclusion
Taxes for the average person will be rather straightforward. If you find yourself with too much information – i.e. investment accounts, real estate, and other forms – you may want to obtain the services an accountant.
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