Tax planning Miami – Ten Ways To Audit Proof Your Tax Return

Except for Tax planning Miami Firms, no one wants to fight with the Internal Revenue Service. That’s why there’s such a mystique about avoiding an audit. While what-triggers-an-audit theories abound, there are some basic things you can do to reduce your chances of being picked for an audit or at least to make any interactions with the IRS less traumatic. My advice doesn’t come with a guarantee, but it’s better than a Ouija board.

 Tax planning Miami Don’t claim flaky deductions

 Use a Tax Preparer Miami Pro, or software

Some argue a return prepared by a Tax planning Miami professional is less likely to be audited, but there’s little reliable data to support it. Nevertheless, having a Tax planning Miami professional prepare your return–or at least advise on anything quirky–is a good idea.

If you do your own return, using a commercially available software package, such as Turbotax or H&R BLOCK’s Taxcut will make it easier and more reliable. If the software produces some result you consider wrong, don’t simply override it. (Or, at least investigate before you do.) Example: You’re not rich and can’t understand why the software has spit out a Form 6251 showing you owe the alternative minimum tax. Sad to say, you probably do, particularly if you live in a high tax state or have a large family.

Tax planning Miami 101 – Don’t file electronically

I’ll take considerable heat for my opinion on this, since the IRS encourages electronic filing, as do many Tax planning Miami accountants. In fact, the IRS boasts that two out of three 2008 returns were filed electronically. Clearly, electronic filing is the thing of the future and will be required for every return someday soon.

Until then, I suggest filing the old fashioned way, particularly if you’re worried about an audit. Why? Paper filing means it’s more work for the IRS to access all the information in your return. Your duty as a taxpayer is to be truthful and accurate, but you don’t have to make it easy for the IRS.

Before I get a blizzard of e-mails about my view of electronic filing, I recognize there are tradeoffs. Indeed, many people think electronic filing is the greatest thing since the mouse was invented. Electronic filing is faster, and if you are entitled to a refund, you can receive it faster. The cost (in time or fees paid to professionals or software providers) may be lower. You save paper, and you don’t deal with the post office.

Yet you are giving the IRS easy electronic access to information it would otherwise have to enter, enabling the agency to examine your return and mine the data more easily than it otherwise could. If you still think I’m nuts, one variable may be the nature of returns. Most individual tax returns are short form (Form 1040EZ or 1040A). If your return is in that category, my anti-electronic filing mantra matters less if at all. But if your return is complicated, I’d stick with paper.

Tax planning Miami Paid Preparer say Always Check your math

Make sure you add, subtract and multiply accurately. Check your numbers through each step and do some simple math checks when you finish. This is another reason to use a software program. Remember, even if you use a software program, you don’t have to file electronically. You can print out your returns and mail them in. If you do make a math mistake, you are likely to get a math correction notice from the IRS. This isn’t an audit. But your goal is to minimize such interaction with the IRS bureaucracy, which isn’t known for the best mail handling practices.

Account for every Form 1099

The Form 1099 comes in many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. These forms are sent by payers of such funds to both you and the IRS. So regardless of how many 1099s you receive, make sure they all are accounted for on your return. There are also Forms 1098 which lenders send (to you and the IRS) recording how much interest you paid. The IRS matches your return against the 1098s and 1099s. So one way to guarantee an IRS query is to fail to account for something. If a Form 1099 is wrong–say it reports more income than you had–you can explain or deduct it on the return, but you need to first report it.

During Tax preparation Miami Disclose just enough

You’d be surprised how many Tax planning Miami professionals and amateurs alike try to submit too much information. True, if your return is complex, you may need to add explanations or disclosures in footnotes. Be concise, truthful and accurate, but don’t provide copies of sales agreements, settlement agreements, bank statements, etc., unless you are later asked to by the IRS.

Disclosures can be made on regular paper or special IRS forms. Tax return preparers distinguish “white paper” disclosures from those on IRS Forms 8275 and 8275-R. A Form 8275 “Disclosure Statement” on plain paper can be used any time you need to disclose something that can’t be adequately disclosed on the forms. Form 8275-R “Regulation Disclosure Statement,” is for disclosing positions that are contrary to IRS Regulations or other authority. You shouldn’t be filing a Form 8275-R–or taking a tax return position that would require it–without professional help.

Assemble your return correctly

Follow the IRS instructions for assembling your return. Usually that means the return itself, followed by schedules in alphabetical order, ancillary forms in numerical order, and plain paper statements and footnotes at the end. Attach Forms W-2 where specified, but don’t attach forms that are not required such as 1099s.

If you receive a small bill, pay it

If you take reasonable tax positions, and complete your return accurately, checking your math, why should you pay a bill if the IRS sends you one? The answer is more practical than principled. It usually doesn’t pay to fight with the IRS, so if the tax bill is small, don’t get into the system and risk bigger problems for a few dollars. Just pay it and move on.

Of course, what is small to one person is a major bill to someone else. There’s no absolute standard here. But at least consider the possibility of paying a tax bill unless you are sure you’re better off contesting it.

Don’t amend without thinking

The flip side of paying a small bill is not amending a tax return just to get a small refund. Amended returns are reviewed much more regularly than initial returns. So if you forgot a deduction or otherwise think you can get a small amount back by amending, think twice before amending your return. Consider whether you might have bigger problems if other matters on your return, unrelated to the amendment, are reviewed.

Don’t ask for your money back

If you are entitled to a refund, consider applying it to your next year’s tax payments, rather than asking for the refund in cash. You’ll have a lower profile if you file a return applying a whopping refund to estimated tax payments for the current or future years. This logic applies to both initial returns and to amended ones.

A last word: No matter how careful you are, there’s no way to guarantee you’ll never have a tax controversy. Sometimes your number just comes up. While audit rates for most types of tax returns are now at historic lows, IRS enforcement efforts are on the uptick, particularly when it comes to upper income taxpayers.

By Gustavo Viera

Gustavo A Viera, CPA, is the managing partner in Gustavo A Viera, PA, CPA. His experience spans more than 25 years. His public accounting experience includes a senior audit manager at PriceWaterHouseCoopers with a focus in the healthcare industry, and Chief Financial Officer of Hewlett Packard Latin America and Telefonica of Spain. Gus also writes a blog twice a week that addresses issues his clients have at He has also taught in the SBA program in Miami FL, and is admitted to practice in the State of Florida licensed Certified Public Accountant. Gus welcomes questions and he can be reached at Gustavo A Viera, PA, CPA, One Alhambra Plaza Floor PH Coral Gables FL 33134 (786) 250-4450.