Whenever people talk of the IRS it's usually followed by some
moaning and groaning. Citizens of the United States fear the IRS because
they are always worrying about their taxes and if they have been
correctly filed or if they will receive a dreaded IRS tax audit. Well,
here are some simple facts and tips to ease your worries and to
hopefully help you maximize your deductions.
The chances of you getting audited - Although many people have this common misconception that the IRS is everywhere, watching your every move - this is simply not the case. The ratio of IRS employees compared to U.S. citizens is so small that it severely restricts the amount of audits the IRS is able to perform. As reported by MSNBC in 2009, if you make under $200,000 in income a year you have a 1 percent chance of being audited. That's right - 1 percent. This number creeps up to more than 6 percent only if you make $1 million dollars in income a year. So for the large majority of Americans your chances are minuscule.
"Legislative Grace" - It has been seen throughout multiple past tax court cases [New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Deputy v. Du Pont, 308 U. S. 488, 493 (1940); Interstate Transit Lines v. Commissioner, 319 U. S. 590, 593 (1943)] that deductions are to be viewed as "a matter of legislative grace." This should be interpreted in two ways. The first is that Congress wants you to use deductions available to you to your advantage! They are graces or gifts that no one should be afraid to take if rightfully entitled to do so. That being said this also says that deductions are...graces or gifts. Do not try to press your luck and be foolish about deducting things on your income taxes that either are not acceptable deductions or deductions you are not qualified to take.
Proper Documentation - It can't be stressed enough how important proper documentation for whatever it is you are planning on receiving a deduction for is. It is most common for taxpayers to forget or misplace documentation, or incorrectly document in the areas of charitable donation receipts and business mileage logs. It is so crucial to have documentation because if an IRS audit takes place you have everything they need to see laid out in front of them. This shows them you were knowledgeable in what you were doing and had nothing to hide. With justification for taking certain tax deductions and proper documentation to prove it is all accurate, the IRS can look all they want, but in the end they will come up empty handed.
The IRS is Afraid of You - Believe it or not, the IRS although eager to audit people for suspicious income tax returns doesn't want to go much further than that. The IRS never wants any found issues or discrepancies to be taken in front of tax court. The IRS does not like to run the risk of having a case go before the tax courts and be decided in favor of the taxpayer thought to be at fault. This is because that case will then automatically become a guideline for all other taxpayers to "beat the system," and that's the last thing the IRS wants. This is why IRS audits are usually resolved long before issues make it to the tax courts. This is not to say that the IRS will not go to court if they find someone to be grossly out of favor with tax law.
Use Your Brain - Everyone always wants to receive the most tax deductions they can possibly get, and some U.S. taxpayers feel the need to sometimes lie on their income tax returns in order to do so. This is just asking for it. Take the deductions you qualify for. If you are uncertain about certain things use your brain and ask yourself if you really think it is fair, and if you are starting to hit some grey areas seek professional help. Using your brain also applies in the scenario that you do find yourself being audited. Be honest to the IRS agent whom you are dealing with and more than likely this will lead to a favorable outcome. If you have made an honest mistake, for example in calculating the amount of unreimbursed business mileage, tell them that. The only punishment likely to come from that is you paying the amount that needs to be adjusted for. Do not try and hide things because this will lead to them searching harder and deeper and then who knows what else they will find that you are either aware of, or unaware.
These few facts and tips may seem obvious to some, but you would be surprised the amount of taxpayers that miss out on deductions due to fear and lack of understanding. And, the amount of taxpayers that receive an audit and are unprepared or misinformed that, in the end, have to pay a penalty.
The chances of you getting audited - Although many people have this common misconception that the IRS is everywhere, watching your every move - this is simply not the case. The ratio of IRS employees compared to U.S. citizens is so small that it severely restricts the amount of audits the IRS is able to perform. As reported by MSNBC in 2009, if you make under $200,000 in income a year you have a 1 percent chance of being audited. That's right - 1 percent. This number creeps up to more than 6 percent only if you make $1 million dollars in income a year. So for the large majority of Americans your chances are minuscule.
"Legislative Grace" - It has been seen throughout multiple past tax court cases [New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Deputy v. Du Pont, 308 U. S. 488, 493 (1940); Interstate Transit Lines v. Commissioner, 319 U. S. 590, 593 (1943)] that deductions are to be viewed as "a matter of legislative grace." This should be interpreted in two ways. The first is that Congress wants you to use deductions available to you to your advantage! They are graces or gifts that no one should be afraid to take if rightfully entitled to do so. That being said this also says that deductions are...graces or gifts. Do not try to press your luck and be foolish about deducting things on your income taxes that either are not acceptable deductions or deductions you are not qualified to take.
Proper Documentation - It can't be stressed enough how important proper documentation for whatever it is you are planning on receiving a deduction for is. It is most common for taxpayers to forget or misplace documentation, or incorrectly document in the areas of charitable donation receipts and business mileage logs. It is so crucial to have documentation because if an IRS audit takes place you have everything they need to see laid out in front of them. This shows them you were knowledgeable in what you were doing and had nothing to hide. With justification for taking certain tax deductions and proper documentation to prove it is all accurate, the IRS can look all they want, but in the end they will come up empty handed.
The IRS is Afraid of You - Believe it or not, the IRS although eager to audit people for suspicious income tax returns doesn't want to go much further than that. The IRS never wants any found issues or discrepancies to be taken in front of tax court. The IRS does not like to run the risk of having a case go before the tax courts and be decided in favor of the taxpayer thought to be at fault. This is because that case will then automatically become a guideline for all other taxpayers to "beat the system," and that's the last thing the IRS wants. This is why IRS audits are usually resolved long before issues make it to the tax courts. This is not to say that the IRS will not go to court if they find someone to be grossly out of favor with tax law.
Use Your Brain - Everyone always wants to receive the most tax deductions they can possibly get, and some U.S. taxpayers feel the need to sometimes lie on their income tax returns in order to do so. This is just asking for it. Take the deductions you qualify for. If you are uncertain about certain things use your brain and ask yourself if you really think it is fair, and if you are starting to hit some grey areas seek professional help. Using your brain also applies in the scenario that you do find yourself being audited. Be honest to the IRS agent whom you are dealing with and more than likely this will lead to a favorable outcome. If you have made an honest mistake, for example in calculating the amount of unreimbursed business mileage, tell them that. The only punishment likely to come from that is you paying the amount that needs to be adjusted for. Do not try and hide things because this will lead to them searching harder and deeper and then who knows what else they will find that you are either aware of, or unaware.
These few facts and tips may seem obvious to some, but you would be surprised the amount of taxpayers that miss out on deductions due to fear and lack of understanding. And, the amount of taxpayers that receive an audit and are unprepared or misinformed that, in the end, have to pay a penalty.
