I have the honor of writing for PowerSource Magazine, a monthly online and print publication. I wanted to share April’s article with you for the general consumer. As a business owner or advisor, please feel free to share this information with your clients as well, if you feel it would be beneficial.
“Give to Caesar what is Caesars, and to God what is God’s.” (Luke 20:25) Since the ancient days of Rome people have been required to pay their government for its service and protection of the community in which it governs. We, as the tax payers, have little recourse but to be wise in how we prepare our tax return.
Being good stewards of the money we make is not only common sense, but a biblical lesson that Jesus taught often. One of the ways we can be a good steward of what God has given us to manage, is to be sure we’ve covered our bases, done our research, and don’t overpay for not just taxes, but anything.
For some, the studious and proactive, you may be already experiencing the benefits of a tax refund. For others, the just-in-time crowd, you may be reaping the consequences of procrastination.
Regardless of which boat you are in, tax season is coming to a close, but that doesn’t mean ‘out of site—out of mind’ is the best policy. Now is actually the best time to create your strategy in which to prepare for next year’s tax season.
First, don’t file away your copy of the tax return just yet. Instead, use it as a guide to help you make next year’s filing season easier to bear.
Next, we’ve created a list of questions for you to go through to indicate areas that may need special attention:
- Big refund? Answering yes to this means that you have the opportunity to better manage your withholding or estimated tax payments. Now is the time to adjust and decrease your withholding so you can utilize your money as needed throughout the year instead of giving the government an interest-free loan.
- Balance due? If so, instead of facing the same fate next year, you can increase your withholding or estimated quarterly tax payments. Taking care of this a little bit at a time is a lot easier to bear than paying the full bill at the end of the year.
- Multiple incomes? Not reporting every source of income could raise a big red audit flag. To avoid this, make sure you keep track of all your income throughout the year and keep your forms in one place so that they are easier to retrieve during the next tax season.
- Large Donations? Giving back to the community here and abroad is certainly commendable, but be sure you are keeping meticulous records of each organization you give to, as well as copies of each receipt. Large charitable donations can also sometimes raise your chances of a tax audit.
- Work from home? The Home Office deduction has a pretty high adjustment rate. Because of that, the IRS has indicated that many people who claim this deduction do not actually meet the stringent requirements for doing so.
- Business vehicle? Claiming 100% use of a vehicle for business (especially when there is no other vehicle available for the person to utilize) is a sticky deduction. The IRS knows that it is extremely rare for a person to never use their vehicle for personal matters, and so audit selection is high for those who make this claim.
- Business meals, travel and entertainment deductions? Sole proprietorships have been a target for the IRS when investigating this particular deduction. From their experience, most of the overstating of deductions in this category is done by the self-employed business owner. The strict substantiation rules for this deduction need to be ardently followed.
- Cash-intensive business? To narrow the tax gap, cash-based businesses have become a target for the IRS (restaurants, car-washes, hair salons, etc.). New guides for IRS agents have been recently created that include interview techniques so they can better identify owners who may be suspect for unreported income.
- Foreign bank account? This issue has been made a top priority for the IRS. With recent cooperation by foreign banks to divulge information to U.S. tax authorities, the IRS has been very successful in identifying those with unreported ‘tax-haven’ type accounts.
Something to also keep in mind is that just because a particular deduction may put you at risk of an audit, don’t let that keep you from making the deduction. If you have the proper back-up for taking the deduction, then you need to use it. That’s what being a good steward is all about!