April 15 Looms: Avoid Missteps that Might Trigger IRS Grief
For all the rhetoric out of Capitol Hill about simplifying the tax code, there isn’t much action making it a reality. If anything, as the government scrambles to close purported leaks in the tax collection system, simplification appears to be just a pipe dream.
Tax filing for the average person is already a significant chore. The possibility of making a mistake, despite a taxpayer’s best intentions, can be high and the result can be a run-in with the Internal Revenue Service that results in liens, levies, wage garnishments and more.
This year, a good number of taxpayers could unexpectedly find themselves in particularly choppy waters due to implementation in July of the Foreign Account Tax Compliance Act (FATCA). The law is so involved and the IRS rules are so unclear that, as one report in Forbes notes, even the bankers who face compliance aren’t sure how to deal with it.
With all that as backdrop, we offer the following things to do to avoid possible grief from the IRS.
- Report all income.Besides a few narrow exceptions, nearly any bit of revenue is likely to be viewed as income by the IRS.
- Keep solid records.No matter what the government suspects, good documentation goes a long way toward putting them to rest.
- Track all Forms 1099.Think of these as the IRS’ cross-reference key. Numbers from a 1099 that don’t match a return could result in a flag. If you have an incorrect 1099, get the provider to correct it.
- Don’t mingle business and personal deductions.The consequences could be devastating. If in doubt, consult an experienced professional.
- Be sensitive to timing.A bonus for work last year but paid this year could cost you. Even if taxes were withheld, the boost to your current year’s income could result in an unexpected tax bite.
- Report foreign income.Forms 1099 aren’t likely to be sent by foreign banks, but information about your assets will reach the IRS because of FATCA.
- Don’t forget foreign accounts.The Report of Foreign Bank and Financial Accounts (FBAR) has to be filed if interest and income from holdings overseas has hit more $10,000 or more at any time during the year.
With so many possible balls being juggled, dropping one is always possible. In that situation, it’s best to contact an attorney for help.
Source:Forbes, “Top 10 Tax Mistakes To Avoid At All Costs,” Robert W. Wood, April 1, 2014
