The #1 Tax Tip for 2008
According to a recent piece in the Boston Globe, the most important thing that you can do as we head into tax season is to make sure that your return is accurate. According to tax attorney Ian Comisky,”Because of a huge deficit and major enforcement initiatives by the IRS, an inaccurate return will have a better chance of being picked up than in prior years.”
That being said, you shouldn’t live in fear of an audit. While there are things that you can do to decrease your chances of being audited, you shouldn’t cheat yourself out of legitimate tax breaks “just to be on the safe side.” If you qualify for a particular income tax deduction then, by all means, you should take it. Just don’t claim things that you can’t substantiate, and don’t try to hide your income.
The bottom line here is that, if you’re both honest and careful, you have nothing to fear from an audit. Yes, it will cost you some time, and it will likely be stressful, but you should emerge (more or less) unscathed.
(Knock, knock, knock… That’s me knocking on wood.)
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Filed under: Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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8 Responses to “The #1 Tax Tip for 2008”
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December 29th, 2008 at 9:34 am
Aside from advising everyone to actually file their income tax returns, that advice has to be the most accurate and beneficial tip I have read to date. People do not understand that the government only wants the people to pay their fair share, no more and no less. And, like you stated nickel, if you are accurately and honestly filling out the return, then an audit will be a breeze. They will simply ask you some questions to substantiate any claimed deductions and if they are legitimate, no further action is required.
What you are referring to is the difference between tax avoidance and tax evasion. The difference is that tax avoidance is a legal method of minimizing tax liabilities by timing and structuring activities and spending so that they will have the least tax consequence. The problem lies with the Pete Rose’s Wesley Snipes’, etc. who fail to even report certain income or don’t even file a return, which is tax evasion.
December 29th, 2008 at 12:40 pm
Believe me the last thing you want is to get caught for tax evasion, especially if you run a small business. I personally always fill everything out because due to my tuition I get a tax return usually. I have had friends who either run a small business or make some extra money and feel that the government does not need to know. Let me assure you they need to know everything.
December 29th, 2008 at 4:38 pm
Any ways to check if the return is accurate? I am new to doing taxes, probably will send it out to a professional to make sure everything is squared.
December 29th, 2008 at 6:58 pm
@Craig:
Accuracy when talking about a tax return is really subjective. The best way to ensure that it is accurate is to be completely honest and reveal all pertinent information regardless of how inconsequential it may be (ie: interest income of $15). Unfortunately, there are some “professionals” who will stretch the limits of the truth in order to get their clients a larger than deserved refund. Talk to friends or colleagues to find out who they use and always ask if they get back a refund that is much larger than they anticipated, and if the preparer asked a lot of questions/requested documentation to substantiate any information given. Usually a trustworthy preparer will always want to cover themselves by having everything included in the return documented in some manner, and will ask for explanations on any point which they are uncertain about to ensure the most accurate return possible.
December 29th, 2008 at 11:11 pm
Imagine how much money the government could save if it simply implemented a flat tax system and closed all of the loopholes. It wouldn’t have to employ so many IRS agents, and the simplified tax system should help people to pay the correct amount of taxes.
December 30th, 2008 at 3:45 am
Rich,
You know they will never do that…….it would be nice, but it’ll never come about.
Nick
December 30th, 2008 at 10:19 am
@Eric Thanks for the tips. I’m going to make sure that I ask questions and learn more about what’s going on. There is a trusted professional who has been doing my family’s taxes for years and will most likely end of going through them, but this time on my own.
January 1st, 2009 at 9:19 pm
My husband hates claiming some of the smaller deductions like goodwill donations, and < $100 donations to non-profits etc.
In order to make him more comfortable I had to get advice from friends who often donate to goodwill and I got this tip.
The easiest way to prove goodwill donations is to take a photo of the pile of donated items each time (in addition to getting a receipt from the store you drop off your donation at). We have not donated yet since getting this advice, but it seems to be good in the event of an audit and not too hard to remember to do.