“ Avoid low gross receipts and few but unusually high expenses.”
1. 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. Remember Murphy’s Law—your bitter half will learn about it at a worse time later when IRS sends notice of unreported income or notice of audit. Malo.
2. Similarly, do not estimate income from interest, dividend, independent contract, partnerships, S-Corporations, or LLCs. Banks, stock brokers and entities send exact amounts of your income to IRS via form 1099s and K-1s. Estimates are bad. They generate mismatch – the main source of correspondence audits.
3. Do not estimate mortgage interest because lenders send exact amounts via form 1098 to IRS. TIP: Request copy of form 1098. Go online to lender website for interest paid.
4. Do not claim unsupported charitable contributions or use big round numbers that look like guesstimates.
5. Do not dump amounts into “miscellaneous” deductions that can accumulate and catch attention.
6. 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.
7. Do not boast about how you got away with undeclared income or manufactured deductions. Ever heard of whistleblowers? They earn rewards of 15% to 30% of your assessments. If you have a tendency to be creative, keep it to yourself. Just shut up. Better yet, stop being creative. Remember the law of averages. Remember Murphy’s Law.
8. 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.
9. 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.
10. 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.
11. 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.
12. Do not go to unprofessional tax preparers who promise big refunds even if you have little withholding. You could be solving a tax dollar problem with bigger taxes, penalties, and interest. Mas problemas.
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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 Pasadena, California.
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2He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].