With tax time right around the corner, many people are starting to get all their filing information together, such as receipts, donation records, bank statements, and 1099 forms. And while it’s important to make sure you have all the relevant documents so you can file your taxes correctly, it’s just as important to be sure you don’t skip any deductions which you may be eligible for. So before you send that paperwork in to the IRS come April, make sure you aren’t missing any of these 13 most commonly overlooked tax deductions.
Have you ever wondered exactly where all your tax dollars go and/or are spent? There are several websites which try their best to break down the facts for you, and I even mentioned one called Death and Taxes here on My Two Dollars back in 2006. (It is no longer a live site, however.) But now there is one officially sponsored by the U.S. government called the 2010 Federal Taxpayer Receipt, which is hosted on the website of the White House.
Well, it finally happened — I unexpectedly received a rather large envelope stuffed full of paperwork from the IRS. My heart sank as I figured I would be dealing with an audit or something like that. When I opened the envelope the first thing I saw was that I supposedly owed taxes on unreported income from 2009, so I imagined days of digging through old paperwork, jumping through hoops, and redoing mathematical equations on two year old tax information. In the very month that both my taxes and my self-employment estimated payments are due, I would now also be dealing with an audit from the IRS. Yikes! After calming down and reading through everything that they sent, I started to understand that it wasn’t really a full-blown audit or anything that would be too painful to rectify. Rather, it would require a little research through my 2009 paperwork to find information on a 1099 form that the IRS said I they received but that I hadn’t reported. I know I don’t miss any 1099 forms, so I wasn’t too worried.
Even if you try to avoid tax audit red flags to avoid the attention of the IRS, the fact is that around 1% of all US taxpayers will be audited each year. While the IRS will usually only audit your tax return if they think they have found a glaring mistake and can collect money/penalties from you, sometimes the simplest error can produce a letter or a visit from the tax man. But just because you are being audited doesn’t mean you have to be scared to prepare your information and present it when asked! There are three different kinds of audits, including a correspondence audit, a field audit, and an office audit, and all will have different requirements for you to fulfill depending on the circumstances. So here are some tips for what to do if you are audited by the IRS:
Nobody wants to be audited by the IRS, period. Although only about 1% of taxpayers actually get audited each year, many worry that this year may be the year that they get chosen for an in-person meeting with an IRS agent. Audits are not chosen at random willy-nilly, but rather by a computer-generated score given to each return by the IRS. Scored by their “discriminant function” system, or DIF, the computer takes into account common variables that may show a need for an audit. Once picked for an audit, an actual human agent takes a look at the return to determine if it is truly necessary or not.