Mature Life Features

Cecil Scaglione, Editor

Tax Audit Needn’t be a 4-letter Word

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By Cecil Scaglione

Mature Life Features

If you’ve been audited by the Internal Revenue Service, you know it can be a traumatic test.

If you haven’t been, there are some simple steps to take to alleviate much of the pain and panic.

The first thing to do is make certain you have documentation supporting all your income and expenses: receipts, canceled checks, and bank, credit-card and dividend statements, for example. If you haven’t started yet, now’s as good a time as any. The IRS never sleeps.

Keep these records for at least three years, which is the normal period the IRS has to audit your tax return. However, it has up to six years to challenge your return if it thinks you have under-reported your income. You need the documentation to prove them wrong. If you didn’t file a return for any time period or filed a fraudulent one, you’re subject to an audit at any time.

Your state (and your city, if it has an income tax) have time-expiration dates that may differ. If you file tax returns in another country, add those expiration dates to your calendar and make certain you keep tax records long enough so you don’t get caught without documentation if your return is questioned.

The IRS treats everyone equally: you’re guilty until you prove your innocence.

That’s why a letter from the IRS can send shivers through anybody who receives one. The first rule here is, don’t ignore it. Most notices include a deadline for responses and the IRS will expect to hear from you by that date.

If you have a tax-preparer, take the IRS notification to him or her immediately. If you don’t have a tax preparer and the IRS is requesting additional information, make copies of the necessary documents and send them to the agency right away.

Even after the challenge limit expires, it’s a good idea to keep your tax returns for a few years extra, along with such documents as your year-end mortgage and investment-portfolio statements. It’s best to have on hand all records for assets you still own, ranging from your house to automobile to major appliances and jewelry. Financial planners report that their clients’ biggest tax error is poor record-keeping.

Your chances of being audited by the IRS are small, but there is no need to gamble. If you don’t maintain your records and if the IRS asks for more information than you have kept, the agency is going to assume that you tossed them out for a reason — that you may be hiding something.

 

 

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Written by Cecil Scaglione

August 29, 2011 at 8:41 pm

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