1. DO not estimate income from interest, dividend, independent contractor or LLC. Banks, stock brokerage companies and LLCs send exact amounts to IRS via form 1099s and K-1s. Estimates generate mismatch – the main source of correspondence audits.
2. Do not estimate mortgage interest because lenders send exact amounts per form 1098 to IRS. TIP: Call your lender for interest paid. Request copy of form 1098. You may also go online to lender website for interest paid.
3. Do not hide interest and dividend income from the IRS, even if your spouse may not be aware of some savings and stock brokerage accounts. He/she will come to know about it anyway later when IRS sends notice of unreported income.
4. Do not claim unsupported charitable contributions or use big round numbers that look like guesstimates. Do not dump amounts into “miscellaneous” deductions that can accumulate and catch attention.
5. Do not exceed national averages for donations, mortgage interest, or taxes if you do not have documentation. IRS computers compare your deductions with others in your income bracket. Excess deductions could increase your DIF score, a secret IRS formula to select returns with the highest probability of helping reduce budget deficits via audits.
6. Do not be careless in organizing records and preparing tax returns if you belong to an industry that traditionally transacts in cash. Recent studies have identified small business owners and independent contractors that do not declare cash collections and therefore are inviting targets for IRS agents.
7. Do not boast about how you got away with undeclared income or manufactured deductions. Ever heard of whistle blowers? They earn rewards of 15% to 30% of your assessments. If you have a tendency to be creative, keep it to yourself. Better yet, stop being creative. Remember law of averages.
8. Do not be complacent about submitting Schedule C (Income from Business or Profession) with an attractive net loss. Avoid low gross receipts and few but unusually high expenses.
9. Do not consistently file late returns. It speaks of a taxpayer who disregards tax laws. It points to a taxpayer who is fair game for scrutiny.
10. Do not submit shoddy tax returns. A shoddy return speaks of a disorganized person who probably does not keep good records – a good catch for an IRS agent.
And by the way, be wary of unprofessional tax preparers who promise big refunds even you have little withholding from claiming too many exemptions at work. You could be solving a tax dollar problem but could also be getting into bigger taxes, penalties, and interest.
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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies. The firm celebrates its 38th anniversary in 2015.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in 704 Mira Monte Place, Pasadena, CA 91101. He has 50 years of experience in accounting, consulting, and tax work.
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The Firm proudly welcomes Arlene Al-os in 2015. She obtained her bachelors of Science in Accountancy from Mindanao State University and MBA from Ateneo de Manila University. She teaches intermediate accounting at UCLA and was a professor of Economics at Asia Pacific College. She has over 15 years of experience including member firms of KPMG and BDO Seidman accounting firms.
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Our readers may call (626) 744-0200 or email tax questions to [email protected]. Please visit our website for about 300 tax tips at www.victorsycpa.com.
