For many of us, it’s hard to believe things could get worse financially. Well, a tax audit by the Internal Revenue Service could make things worse.
Even if you didn’t do anything bad, a slight mistake on your tax return could kick off an audit.
SmartMoney.com offers these five tips to keep you out of tax trouble:
1. Make sure you show all of your income. In addition to salary and bonuses, make sure to include proceeds from sales and stocks and bonds, dividend earnings, brokerage and bank accounts and all other interest-earnings investments. Unemployment income needs to be included too.
2. Pay taxes even on forgiven debt. Even if a credit card company or other lender agreed to reduce a debt, you still must pay taxes on it. If your debt was cut from $10,000 to $6,000, you still must pay taxes on the $4,000 worth of forgiven debt.
3. Show documentation if you claim a small business loss. Such claims may raise a red flag for the IRS. Make sure you show bank statements, receipts and invoices.
4. Be cautious about claiming a home-office deduction. In order to qualify for such a deduction, the office in question must be your principal place of business and used exclusively for business. You are not eligible, for instance, if you use the office for business during the day but as a family room at night.
5. Pay close attention to reports of real estate gains and losses. If you lost your home to foreclosure or managed to eke out a profit on a sale, you’ll need to include the transaction on your tax returns.