Tax Refunds Guide

Announced yesterday, the IRS will be auditing 6,000 businesses in order to provide data for its first statistical analysis since 1984, which is used to determine how often businesses misclassify their employees in order to cheat on tax obligations, fail to pay taxes on fringe benefits, and improperly pay taxes for company executives.

Companies will be chosen randomly, and the audits will start in February.

The IRS believes that businesses have dramatically changed since 1984, and this audit will help the government find out where the real tax paying issues are that they must address. Based on the 1984 data, the IRS estimated that businesses underpay employer taxes by about $14 billion every year. But we’ve come a long way since 1984, so my guess is the amount estimated that businesses underpay by will greatly change.

Misclassifying employees poses a significant problem because it cheats our government out of important tax revenue, which is used for important programs such as Medicare. Employers who misclassify employees as independent contractors will soon see the consequences as they can be denied health benefits, overtime pay, and unemployment insurance.

Like most people, you probably want to get more out of your annual tax refund. The problem is tax calculations seem complicated and dangerous – one mistake could get you into serious trouble.  But knowing what credits and deductions you’re eligible for and how to claim them will help a lot.

Preparation

Paper Trail – You can’t make a deduction in your tax income without documentation.  Everything must have hard proof if you don’t want the IRS knocking on your door.  Save all your receipts and make notes on what they are for.   Even small purchases count if you’re determined to get back every penny you can from Uncle Sam.

Investment & Savings – Make up your mind where to invest your tax refund once you get it.  You can open a CD account, invest in a mutual fund, buy gold, etc.

Professional Consultation – A tax reviewer isn’t necessary if you know what you’re doing, but it won’t hurt to get a second opine for ion.

Deductible Expenses

Charitable Donations – Even the little things you do for a local charity can be tax deductible.  Get ready to prove you bought supplies for the local humane shelter!  Even non-cash, second-hand donations like toys and books qualify.

Moving Expenses – If you need to move from one place to another because of your job, the expenses are tax deductible.

Medical Expenses – Schedule your health consultations in the same year if it will exceed 7.5% of your adjusted gross income (AGI).

Child Care – You may be eligible for a child tax credit if you have one.  If you and your spouse both work and you pay someone to care for your offspring, you may be eligible for child care tax credit also.

Retirement Contributions – The more you put to this, the smaller your taxable income gets.

Nowadays it’s more crucial than ever to get your tax refund.  Give it the attention it deserves and you will be amply rewarded – literally – by year’s end.