Weekly business rail, with tips on avoiding an audit, tax tips from the BBB and more.
Tip of the Week
The Internal Revenue Service audited almost 1.6 million individual taxpayers in 2010. That's an 11 percent increase over the year before and more than double the agency's pace just eight years earlier. With Uncle Sam confronting a trillion-dollar budget deficit, that pace may continue rising as the government works harder to collect every dollar it's owed under the tax code. To help you avoid the spotlight, Texas-based financial services provider USAA points out eight IRS attention-getters and offers eight IRS survival tips if you catch the taxman's attention.
1. High incomes. According to IRS 2010 enforcement results, your chance of being audited triples once your income crosses $200,000.
2. Large itemized deductions. "Deduct every penny you're entitled to - but realize that if your itemized tax deductions are bigger than most people's at your same income level, your return may get a second look," says USAA certified financial planner June Walbert.
3. Home offices. You can only take a home office deduction if you regularly and exclusively use part of your home as your principal place of business. If your office doubles as the kids' playroom, forget about it. For details, see IRS Publication 587.
4. Missing investment income. You know those 1099 forms that financial services companies send you to summarize your interest and dividends for the year? The IRS also gets a copy. Make sure your return matches them.
5. Incomplete returns. If your return is missing a few pieces, the IRS may wonder what else you forgot. Tax preparation software can help you avoid clerical errors that raise auditors' eyebrows.
6. Business losses. "In a tough economy, business losses are more common - but they're still something the IRS likes to double-check," says Walbert. Make sure your expenses are legitimate, and that your business isn't just a thinly disguised hobby.
7. Charitable deductions. You'll need a canceled check or dated receipt for any cash contributions, and contributions of $250 or more require a written acknowledgement from the charity. If you made a noncash contribution valued at more than $5,000, you'll need an expert appraisal to back up your claim.
8. Medical expenses. You only can deduct these costs to the extent they're greater than 7.5 percent of your adjusted gross income, and it's important to have detailed records. "Don't get carried away," cautions Walbert. "You can't deduct the cost of over-the-counter medicine, health club dues or most cosmetic surgeries."
While the deadline to file and/or pay your taxes was extended to April 17 this year, many Americans look forward to receiving a tax refund check from the government. During this tax season, the Better Business Bureau advises taxpayers to use caution when filing returns to avoid making common mistakes and to use caution when selecting tax preparation help to avoid headaches and mounting fines or fees if the return isn't correct or filed late.
The BBB offers the following tips for individuals still working on their returns:
- Research tax preparers you can trust at www.bbb.org.
- Be wary of Tax Refund Anticipation Loans, or RAL. This is a loan provided by a third party against a taxpayer's expected refund. The tax refund anticipation loan is not provided by the U.S. Treasury or the IRS and is subject to the interest and fees set by the lender. Some of these lenders have hidden fees and file inaccurate tax returns without consumer consent.
- Check for missing, incorrect or illegible Social Security numbers, which can delay a tax refund.
- Taxpayers must sign and date returns. Both spouses must sign a joint return, even with one income. Anyone paid to prepare a return must also sign.
- File electronically instead of using paper tax forms to receive your refund more rapidly.
- Make any check out to "United States Treasury" and enclose it with, but don't attach it to, your return or Form 1040-V, Payment Voucher. Include your Social Security number, daytime phone number, the tax year and the type of form filed.
- If you are behind, get an extension for your return. By April 17, you should have either filed a return or requested an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.
- Be sure to keep all receipts and other documents and forms that were used in preparing your tax return. The IRS has three years to audit a return. They can audit you without limitation if you do not file, file a false return, or purposely avoid paying taxes.
- If you notice a mistake on your prepared federal tax return, you can make changes by filing a 1040X. You have three years after filing to correct your return with this form.
For more advice, visit www.bbb.org.
According to Yahoo, here are the states with the most homes in foreclosure:
5. New York
2. New Jersey
Number to Know
30: Number of employees that Oprah Winfrey’s OWN is laying off amid struggles to gain an audience. That’s one-fifth of the staff.
NetZero, the popular 1990s Internet service, is back. The basic wireless plan is free, but equipment will cost $50-$100, and accounts are limited to 200 megabytes of data. Paying plans with more data start at $9.95 a month.
GateHouse News Service