How to audit-proof a tax return

The audit-proofing techniques I teach in my books have been used effectively to prevent audits, penalties and the wasting of precious time you need to take care of your family or operate your business. The techniques are simple — especially in light of the fact the IRS produces a special audit-proofing form you can use.

Audit-proofing is based on the principle of providing information with your return that will answer any potential questions raised in your return. You provide information for claims you think could raise a red flag and trigger an audit.

Charitable contributions, mileage claims for a small business, unusually high entertainment costs, the home office reduction or unusual medical expenses are among those deductions that are highly scrutinized.

By providing proof of suspected red-flag deductions with the return, you in effect, eliminate the need for the return to be audited. Proof may include copies of canceled checks, copies of receipts, or an affidavit explaining how you arrived at certain deductions.

Form 8275 is a form the IRS would rather you did not know about or use. It is called the Disclosure Statement. When filed with the return, it calls attention to a claim made and says “I claimed this based on these specific grounds.” It allows you to prove your claim without going through an audit.

By proving your case before an audit, you greatly reduce the need for an audit and the scope of an audit if there are other claims called into question later. The IRS would rather not audit people who are informed and prepared to respond to a challenge.

Making full disclosure at the time you file your return can also provide grounds for eliminating penalties if you should happen to make a mistake in your return. Form 8275 demonstrates good faith and illustrates the reasonable cause for the action you took in making the claim. These are the primary grounds for abating penalties if assessed later.

For more information on how to audit-proof your tax return, please see my book How to Win Your Tax Audit.

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How to get an extension of time to pay taxes

Each year, approximately four million citizens are penalized for failing to file a return on time or failing to pay the tax on time. Many of these penalties could be avoided if the IRS would just come clean about your right to request an extension of time to pay a tax.

The extension of time to pay should not be confused with automatic extensions of time to file a return.  Form 4868 allows you to obtain an automatic six-month extension of time to file a return. However, this form makes it clear that the tax owed at the time of filing must be paid. Failure to do so will result in penalty.

Form 1127, however, is quite a different animal. It is entitled, Application for Extension Of Time To Pay Taxes. It is important to note that this application is not an automatic extension. In order to have your application accepted, you must show undue hardship. Medical reasons, natural disasters or a death in the family are among those hardships that may be recognized by the IRS.

When an application is accepted, you are given up to six months to pay the tax free of penalty. However, interest accrues from the time the tax was due. Use of Form 1127 and tips on how to make a successful application can be found in my book The IRS Problem Solver.

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