5 Things You Should Gather For Tax Season To Avoid Being Audited
Death and taxes. Both are inevitable and both are about as much fun. Death probably beats out taxes by a slim margin since you only deal with it once. Love it or hate it – and let’s be honest, you hate it – there’s no getting around it. Unless you’re a billionaire hedge fund manager with access to off-the-record banks in Panama, but if you’re looking to us for accounting advice, it’s a safe bet that’s not you. With tax season coming up, it’s time to start prepping.
Don’t Get Caught Unprepared for Tax Season
Every year, the IRS performs literally millions of audits of people who don’t declare their taxes properly. They spend almost as much enforcing compliance as people improperly declared. While that’s a zero-sum game for the IRS, it’s a huge inconvenience (and expense) to you. The IRS won’t change it’s way of doing things any time soon. You might as well get used to it and do some prep to avoid the problem. Here’s the information your bookkeeper and accountant will need to keep you out of trouble.
1. Your Personal Information
Making sure that the IRS properly identifies you is critical. It’s no good sending them money if they don’t properly identify it as coming from you. There are several pieces of personal identification you will need to make sure your tax return isn’t audited. They are:
- Last year’s income tax return
- SSN for you and your family
- Birth dates for you and your family
- A photo ID
- Bank account details
- Child care provider EIN (may not be applicable, ask your accountant)
2. Personal Income Information
It is absolutely important to properly declare your entire income during the year. And by “entire” I mean everything. A lot of people think it’s fine if they leave off this or that for whatever reason, but that’s a surefire way to get the IRS on your case. If they find anything that doesn’t match up with what you declare, they’ll come looking. Serious looking. Knocking down the door and setting fire to the roof kind of looking.
Here’s what you should have:
- W-2 forms from any employers
- IRS 1099 forms, including:
- 1099-G (unemployment compensation)
- 1099-NEC (non-employee compensation)
- 1099-INT (interest income statements)
- 1099-DIV (dividend income statements)
- 1099-R (retirement income)
- IRS Schedule K-1 (Form 1065) for partnership income
- Income from rental properties
3. Personal Deductions
The deductions are where you can save the most on your taxes. To minimize the hit you take this tax season you want to track down as many relevant expenses as possible. If you’ve been keeping receipts, you’ll be amazed by just how many deductions are available to you. Here’s what to look for:
- Receipts for medical expenses
- Documents for your primary residence including form 1098 (Mortgage Interest Statement), property tax records, and expenses related to energy-saving improvements
- Child care expenses
- Charitable donations
- Expenses on any of your rental properties
4. Business Information
If you own a business, you’re going to have a host of other information that you need to declare. This can get pretty complicated. If you want to avoid your business getting audited, this is what you must have:
- Last year’s business tax return
- Employee Identification Number (EIN) if applicable
- Any applicable partnership agreements
- Any applicable change of ownership documentation
- Business bank account details (which should be separate from your personal bank account for many reasons)
5. Business Financial Statements and Other Documents
There are so many tax codes and exemptions for businesses it’s easy to end up paying more taxes than you really owe just because you’re missing information. You should make sure you have your business expenses on hand as well. Talk to your accountant to find out what your business will specifically need. As for the basics, here’s a quick rundown:
- Profit and loss statement
- Balance sheet
- Log of vehicle usage (including mileage and purpose of travel)
- Home Office Details (including the size of your office, rent payments, and utility bills)
- Receipts of any purchase made for your business
Don’t Forget Your Estimated Tax Payments
If you had to make any estimated tax payments, be sure to bring those documents as well. If you didn’t pay any, but should have, then you should set up an appointment with your accountant to get those paid right away, or work to calculate your estimated liability throughout the year.
Escape The Audit This Tax Season
Audits suck. The IRS does not play around when it comes to making sure they get what they’re owed. It’s just about the only thing the government spares no expense on, even if the cost of getting that money is less than the money they actually get. It’s just business to them, but it’s hell for you. As tax season rolls around, you should use this checklist to make sure you get everything ready for tax declarations.
Do you need any help with this? That’s what we’re here for! If you need advice, or help calculating your taxes, or just want some questions answered, don’t hesitate to ask us. It’s what we do. We’ll help you save time, money, and your sanity!