Wednesday, January 25, 2017

How to Stay Out of Trouble With the IRS

It’s the most wonderful time of the year again … tax season. If you’ve already begun the filing process, good for you! Most Americans wait until the first week of April to even begin thinking about filing, so you’re saving yourself a lot of panic down the road. And because you’re already ahead of the game, there’s no reason to stop the momentum now.

When you’re on track or already a bit behind, there’s still time to minimize trouble with the IRS.

Avoid Trouble with the Taxman

Here are 6 ways to stay on the IRS’ good side all year—even after tax season is over.

1. File your taxes on time. This may seem obvious, but it bears emphasis. The easiest way to stay on good terms with the IRS and avoid being audited is to file your tax return on time. Can’t afford to pay your income tax? Ask your accountant to help you file for an extension. But file your business and personal returns anyway, even if you absolutely cannot afford to pay.

2. Keep detailed records. If you are ever audited, you’ll need to have accurate expense records. IRS audits require you to provide copies of specific documents to support the credits, income, and deductions you claimed on your tax return. These documents might include receipts, bills, cancelled checks, legal papers, loan agreements, loans, medical records, among others.

To protect yourself from panic later (and to make next tax season a little less stressful), keep copies of every receipt and business expense. Fortunately, there are a lot of helpful apps and software solutions that make record-keeping easy, like QuickBooks for your expenses, Gusto for payroll, and MileIQ for your business mileage.

3. Keep business and personal expenses separate. Since you’re surely already an expert at keeping detailed records of your expenses, get into the habit of separating all of your business and personal expenses.

Be very careful what you choose to write off as a business expense—mileage for actual business opportunities counts, treating your spouse to dinner while on a work trip does not. Again, if you are ever audited, you’ll have to provide proof that your business expenses were actually for business—you don’t want to be stuck trying to explain to the revenue officer how that weekend in Vegas contributed to your business’ bottom line.

4. Pay your payroll taxes. Payroll taxes are one of the few things you absolutely cannot afford to mess up. The IRS considers payroll tax evasion to be the equivalent of stealing from your employees, so it’s an offense they take very seriously. If you cannot afford to pay your income tax, ask for an extension, but never willfully spend the payroll tax you’ve withheld from your employees.

5. Take care of tax issues quickly. Unless you’re absolutely sure the IRS hasn’t made a significant mistake, you’re usually better off just paying your tax bill—especially if it’s a small amount. A bill that you can reasonably afford probably isn’t worth getting into a fight with the IRS over.

Determined to fight the amount the IRS claims you owe? Don’t try to fight the IRS alone. Hire a tax professional who specializes in tax resolution.

6. Stop avoiding the IRS. If you do have a tax problem, stop ignoring the notices from the IRS—they aren’t going to go away on their own. Ignoring the problem can only make it worse—adding interest and penalties on top of whatever you already owe. Even worse, the IRS might even make a personal stop by your business—and talk to your customers. If you ignore the problem for too long,  you can expect the IRS to impose a lien, or even seize your property. So, if you get a letter from the IRS in the mail, take action. Hire a tax resolution professional to help handle your case—before it gets worse.

Want more tips for having a successful tax season—and a successful relationship with the IRS? Check out “Pay or Delay? What to Do With Your Small Business Taxes in 2017.

The post How to Stay Out of Trouble With the IRS appeared first on Fundera Ledger.

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