Top Ten Ways To Avoid An Unwelcome Letter From The IRS

Top Ten Ways To Avoid An Unwelcome Letter From The IRS

Think about this - have you ever been audited before? If not, congratulations! It probably means that you're in the clear. But if your luck has run out and you find yourself with the prospect of getting a visit from IRS officials, take a look at this list to keep things running smoothly.

Close any offshore or retirement accounts

One way to avoid an unwelcome letter from the IRS is to close any offshore or retirement accounts. This may seem like an obvious solution, but many people don't realize that these types of accounts can be flagged for tax evasion.

If you have an offshore account, make sure to close it before the end of the year. Retirement accounts can also be subject to taxation, so if you're not planning on using the money anytime soon, it may be wise to close the account and put the money into a taxable account.

The bottom line is that you should consult with a tax professional before taking any action that could potentially trigger an audit from the IRS.

Take advantage of the foreign earned income exclusion

If you meet the requirements, you may be able to exclude all or part of your foreign earned income from your U.S. taxable income. To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must file Form 2555, Foreign Earned Income.

The requirements to qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction are discussed in chapter 4 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

To claim the exclusion for amounts excluded under a tax treaty, see chapter 6 of Publication 519, U.S. Tax Guide for Aliens.

Regularly review your records with a CPA

It's always a good idea to have a professional review your tax records on a regular basis, but it's especially important to do so if you're self-employed or have complex financial affairs. A certified public accountant (CPA) can help you make sure you're keeping accurate records and taking advantage of all the deductions and credits you're entitled to.

If the IRS does send you a letter, a CPA can also help you interpret it and determine the best course of action. So if you want to avoid an unwelcome letter from the IRS, be sure to keep your records in order and consult with a CPA on a regular basis.

Make sure to claim all available deductions, including contributions

When it comes to taxes, the best offense is a good defense. You can avoid an unwelcome letter from the IRS by making sure to claim all available deductions, including contributions.

For starters, if you’re self-employed, you can deduct a portion of your health insurance premiums as well as your retirement plan contributions. You can also deduct expenses related to your business, such as travel and office supplies.

If you itemize your deductions, be sure to include all charitable contributions. And don’t forget about state and local taxes, mortgage interest and medical expenses.

By taking all available deductions, you can lower your tax bill and avoid an unfavorable letter from the IRS.

Maintain good records and prepare tax reports as soon as possible

The IRS recommends that taxpayers keep good records and prepare their tax reports as soon as possible. This advice is especially important for small business owners and self-employed individuals, who often have complex tax situations.

Good records can help you keep track of your expenses, income, and other important information. They can also help you prepare your tax returns accurately and timely.

If you wait until the last minute to prepare your taxes, you may make mistakes that could delay your refund or cause you to owe money. You may also be subject to late penalties and interest charges.

So what constitutes “good records”? The IRS suggests that taxpayers should keep track of the following information:

· Date of purchase

· Description

· Amount paid

· Business purpose (if applicable)

Additionally, small business owners and self-employed individuals should also keep track of:

· Mileage driven for business purposes

· Home office expenses

· Depreciation expense