No one likes paying taxes. However, most people are able to tolerate the idea of taxes so long as the organization responsible remains remote and faceless. But when the Internal Revenue Service starts calling you at home, things can become stressful.
Indeed, the power of the IRS is formidable, and most of us would undoubtedly prefer to limit our encounters with it. To that end, here are three easy tips to help keep the IRS out of your hair.
• Having all of your records handy is not only necessary in the event of an audit, it can also keep you from being audited in the first place. Deductions will be disallowed unless you can provide records that justify them. In order to do this quickly, tax records should be organized and accessible.
• Be careful with your 1099s. Do not just put them to the side as soon as they arrive. It is common to receive an incorrect form. If this happens, contact the issuing payor. If they have already sent the invalid copy to the IRS, ask for a corrected 1099. The IRS does a great deal of return matching, whereby they correlate taxpayer identification numbers with payments. Small discrepancies can cause big problems.
• Separate personal and business. Although many activities or purchases may not fall neatly into either category, it is important combining expenses. A vacation home may also be functioning as an investment, but an attempt to deduct here may raise eyebrows. A divorce may put your business at risk, but deducting the legal fees is probably not the best idea.
Source: Forbes, “Three (Incredibly Simple) Rules To Keep The IRS Away,” Robert W. Wood, Aug. 25, 2012