Flying Below the Radar

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Filing taxes may make you jittery, but nothing clears a room faster then a call from the IRS. Remember that classic scene from The Honeymooners when Ralph Cramden gets a call from the IRS instructing him to come down to their office right away? He nearly dies from fright only to find out it was nothing at all. Not to stir this pot up further, but did you ever see an IRS agent's badge? An IRS agent does indeed carry a big badge, and it makes a police badge look silly. Okay, maybe that was more information than you needed to know.

There are ways to keep the IRS away from your door, as well as ways to be prepared in the event that they do come calling. It is never too soon to keep organized and accurate records. Receipts are important but they are not enough; you should maintain a log book during the year.

The following may be obvious, but people make these mistakes all the time:

• File your tax returns ”That may sound funny , but the self-employed represent the largest group of nonfilers in the country.

• Sign and date your returns ”Your return is not considered complete without your John Hancock.

• Remember to put your SSN or your EIN on your returns.

• Pay any income tax that is due when you file.

The IRS knows that individuals and businesses have been abusing deduction claims for a long time. Deductions are definitely a flash point for the IRS. Here are a few that the IRS might red-flag:

• Charitable contributions ” If your business makes a charitable contribution, then you should keep a record of your donations. Whenever you can, write a check for all your contributions. In the record, indicate the organization, date, and amount of the contribution. The IRS requires that all contributions over $250 include a written receipt from the organization. A fast and efficient way to keep this information handy is to set up a hanging folder in your filing system and label it Charitable Contributions. Keep a charitable log in the file, then each time you make a contribution, make a notation in the log, along with the letter or receipt into the file for safe keeping.

• Home Office ” For years , people have been trying to write their house off as a home office deduction. But the IRS has very specific requirements for claiming this deduction. First of all, claim just the space that is actually your home office. Be sure that the percent ratio is correct before you submit the information in your tax return. If you claim repairs and utilities, then make sure to hold onto these receipts. Be really smart and take a photograph of your home office. Keep the photograph tucked away in a safe place in the event of not only an audit, but a fire, natural disaster, theft, or if you move.

• Entertainment ” The IRS provides a clear list of what entertainment, travel, and dining deductions are acceptable. Get into the habit of keeping concise records in an entertainment and travel log that makes clear the date, place, purpose, who was present, and amount. It is not enough to just keep stubs and receipts.

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