Good morning! Since the United States income tax deadline is this month, this month’s Some of my Favorite Books post is going to be about four books that have to do with taxes. These books were all written by the same person, C. Ingraham RTRP. The books I’ll be talking about in this post are How to Audit-Proof Your Income Tax Return, Tax Loopholes Made Easy, Tax Loopholes, Tax Free Living and Retirement, and Hidden Tax Benefits in Schedule A.
How to audit-proof your income tax Return – UPDATE 7/10/16 – Please note, this book is currently not available for purchase, per Amazon’s website.
This eBook provides several tips about red flags that may cause the IRS to audit your income tax return. Some of these tips include:
- Making sure all of your itemized deductions are realistic.
- If you file using Schedule C for profits and business expenses, remember that the IRS expects you to show a profit at some point – if you show losses for more than three years, that could prompt an audit – the IRS will want to know if you’re running a business or a hobby.
- The more you make, the higher your chances of being audited become, especially when you earn over $200,000 in a year.
- The IRS receives a copy of all your W-2s and 1099 MISC forms. When the IRS computer can’t match a W2 or a 1099 MISC income with income on your tax return, this is an automatic red flag, which results in no less than a paper audit. The IRS computer is very good at finding unreported income – when it does, it notifies an IRS agent, and you want to avoid them at all costs.
- Large deductions for meals, travel and entertainment are a fast way of becoming a person of interest with the IRS. The reason there’s a 50% deduction allowed for meals is because the IRS isn’t interested in paying for them – it’s the price of your client’s meal that’s deductible, and the IRS wants detailed records of how much was spent on meals. For example, the IRS will want know where the meeting was, who attended the meeting, and what was discussed at the meeting – it’s best to write this information down on each receipt. As far as travel is concerned, keep detailed records of what event you attended, the cost of the event, itemized – for example airfare, hotel, convention fees, workshop fees, etc. You can’t deduct your spouse’s travel unless he or she is part of the business.
- If you don’t file a Form 8283 for donations over $500, that’s a good way to become a person of interest with the IRS – this falls under filing an incorrect tax return which is one of the top reasons tax payers get audited.
- If you take advantage of a home-based office or home-based business, you have a higher chance of being audited. If you have a home office, be sure to keep very good records. Also, small businesses who regularly under report their income are targets for the IRS.
Tax Loopholes Made Easy – In this ebook, C. Ingraham RTRP discusses several tax loopholes that people can take advantage of to decrease their income tax liability using a few case studies. Some of the tax loopholes she mnetions are starting a home-based business, purchasing rental property, contrubing more to your 401k, and reporting unreimbursed employee expenses. In addition, she provides other tips, such as paying January’s mortgage payment in December.
Tax Loopholes, Tax-Free Living and Retirement – In this ebook C. Ingraham talks about the foreign earned income exclusion, a tax loophole that allows people to avoid paying taxes by either moving to a different country or creating an offshore company and paying yourself from an offshore account. She explains the hurdles you need to jump through in order to qualify for the exclusion – for example, you need to be a resident of the country for a full year in order to qualify for the exclusion – if you’re not willing to do that just yet, then you can create an offshore company. She also explains Form 2555, which is the form that you’ll have to fill out order to claim the Foreign Earned Income Exclusion.
Hidden Tax Benefits in Schedule A – This book is a very short book that explains some of the tax benefits that you can take advantage of in Schedule A, which is where you report your itemized deductions. In this book, C. Ingraham talks about Schedule A tax benefits by using a fictional example of a man named Kenneth. Some of the tax benefits she talks about include state and local income taxes, charitable contributions (either money or goods), medical expenses, and income deferment.