Finance Tax Time

The odds are low that your Internal Revenue Service (IRS) tax return will actually be audited. As it is, it is virtually impossible for IRS to examine each and every tax return due to time and personnel constraints. Also, the greater your income, the more chances you have for being audited. After all, it doesn’t make financial sense for IRS to audit somebody’s tax return whose income is, say for example, $5000 per year.

Still, nobody is immune from IRS audits and the last thing you want is to spend your time and energy in your audit.

Here are some of the steps you can follow to minimize your chances of being audited.

1. Use a computer to prepare your tax return: Not only will your tax return look cleaner to read, but you will also minimize your chances of making a mistake on your return.

2. Always check your figures: Once you are done with your tax return, always make sure all the amounts that you entered in your tax return document are correct. If the amounts are not correct, it is always easier to fix the problem now than to hope that IRS won’t find out. Remember if IRS does find out, you will spend a lot of time and energy in fixing your problems.

3. Sign your return: Even though this is a no-brainer, many people simply forget to sign it. One of the most obvious reasons is that we spend a couple of days finishing and reviewing the tax return and in the end, we forget signing our own tax returns.

4. Use electronic filing: If you file your return on a hard copy, do remember there will be an IRS employee who will enter the numbers you provided in their computer system. Obviously, this is a time consuming effort. Also, the IRS employee himself can make a mistake when entering the data into the computer system. It is better to file electronically so that there is no margin for introducing errors.

5. Provide proof if you have large deductions: If you have a large deduction such as an expensive medical treatment, you can provide receipts, checks and medical bills. Large deductions can turn on the IRS audit flag and it is always good on your part to show as much proof as you can. You may use disclosure Form 8275 for this purpose.

6. Use care for business expenses : One of the biggest advantages of a business is that you can claim deductions. However, not every expense can be counted as a business expense. The laws can be complicated and it is always better to see a tax attorney for this matter.

The best step you can follow is, just be honest about your financial aspects. If you are honest, you don’t have to be afraid of anything if an IRS taxman knocks on your door.

Copyright 2006 Divyesh Dave

Divyesh Dave is an online entrepreneur and currently runs a financial based website. For more information, visit http://www.bajika.com and his financial blog at http://ezdough.blogspot.com/

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If you are employed by a business, you have the ability to play with the withholding on your paycheck. Fortunately, there is an easy way to do this online these days.

What is one of the happiest days of the year? Holidays excluded, for many people it is the day they get their tax refund check. Yep, cold, hard cash they can spend anyway they want. Alas, this is a mistake.

If you are getting sizeable tax refund checks each year, you are making a mistake with the withholdings from your paycheck. The federal government does not pay interest on the amount you overpay in taxes. As a result, you are giving the government an interest free loan throughout each year. While the government certainly seems to need every buck it can get, you would probably prefer to use the money yourself.

If you are overpaying or underpaying taxes out of your paycheck during the year, you need to tweak your W-4 withholdings. W-4 simply refers to the tax withholding form related to your employment and is filed by your employer. You can change the number of withholding by simply asking your human resources department.

To figure out the correct W-4 amounts, you used to need calculators, abacuses, forms and a minor psychic ability. Alas, the friendly IRS has made things easier. You can now go to the IRS site and access an online system that will figure it out for you. Simply search for “W-4″ withholdings on the site and fill out the form. Once you do, it will calculate the information and let you know the adjustments you should make.

To fill out the form, you need a few things. First, you should have your last paycheck stub on hand. Second, you need your tax return from the previous year. If you need to estimate various information during the process, you can do so as long as you use reasonable numbers. It is not a test.

Once complete, the IRS site should spit out information for your withholdings. You should print this and compare it to your current information. Doing so should let you know if you need to make any changes.

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If you own a business and have employees, you have an inherent feel for the joy of filing employee related tax documents. Alas, the IRS is cutting back on the burden.

IRS Helps Employers By Reducing Filings Required For Employees

Employees are critical to any business other than the smallest ones. That being said, the tax requirements for dealing with employees can be a pain in the derriere. The problems are many, but one particular situation puts employers in a very bad spot.

Withholdings on employee paychecks is a subject that can cause tension in a business. Inevitably, some employees will want to reduce the withholdings from their check beyond the norm. The employer, in turn, is faced with the prospect of the IRS focusing unwanted attention on the business because of such actions. In a worst case scenario, the IRS will send a lock letter setting the amount of the withholdings. This puts the employer in the bad position of telling the employee more money must be withheld - a situation sure to cause tension. Making matters worse, the employer was supposed to be able to determine when the employee was abusing the withholding process.

The IRS has issued regulations that at least relieve the employer of the burden of determining if an employee is stepping over the line on the reduction of withholdings. Whereas the employer was previously required to send a W-4 Withhold Allowance Certificate to the IRS if an employee was claiming a total exemption from withholdings or more than 10 allowances, it no longer does. As of April 14, 2006, the IRS will simply make its own determination using salary filings for the business in general.

This regulation modification by the IRS should be applauded as a significant boost to employers. No longer does an employer have to act as a detective in determining whether an employee is not paying in enough tax on paychecks. Instead, the employer can now sit back and wait for the IRS to act. If the IRS feels an employee is out of line, the agency will send a lock-in letter to the employer. The employer than has no choice but to comply. Employees are much more likely to understand this and focus their anger on the IRS instead of the employer.

The new withholding regulations represent a positive step by the IRS. They might just keep employers out of the tax problems of employees.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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