Bullet Proof Your Tax Records

July 14th, 2016 at 10:49 AM

Let’s start with this most important statement of fact. All the numbers included in your tax return are your responsibility. You create the numbers, not your accountant or CPA. You are required to have adequate documentation for your tax return. When you sign your return, you attest to its accuracy under penalties of perjury. Additionally, you are required to read your return; you cannot avoid penalties by claiming that you solely relied on your accountant or CPA. By bullet proof or audit proof means that by adhering to my advice, you should be able to substantially increase your outcome of any audit.

Why Documentation is Needed

Documentation is the key to sustaining your tax position, and is required by law. The IRS states that you must maintain records that support accurate tax returns. Moreover, the records should be made at or near the time of the expense, and be permanent, accurate, and complete. Failure to comply with the adequate documentation standards of the Internal Revenue Service can result in disallowance of your valid tax deductions. In other words, one is assumed guilty by the IRS until proved innocent!

In addition, there are questions that relate to certain expenses on your tax return such as automobile expenses. If you answered the various mileage records questions incorrectly, you could be subject to fraud penalties!

Strategies to Meet the Records Requirements

I relate my 6 distinct strategies to clients to adhere to the record requirements. They include having 2 separate files and a daily diary, paying expenses by check or electronically, and having invoices for all expenditures. These strategies provide peace of mind that you records are in order, and can stand the challenge of an IRS audit.   

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