To help put dollars in your pocket and ease your interactions with the tax system, these are far more important to your tax health than you might think.
1. Everything is Income. The IRS taxes all income from any source, whether in cash or in kind. Lottery? Taxed. Gambling? Taxed. You name it, it’s taxed. If you find a diamond ring, you pay tax on its fair market value even if you don’t sell it. See Who Pays Tax On Hef’s Engagement Ring Sale?
2. Forms 1099 Really Count. Those little tax forms you get in January are keyed to your Social Security number. The IRS always gets a copy. Pay attention to them—the IRS sure does. See 1099 Or W-2?
3. Beware Foreign Accounts. Foreign bank accounts may generate income but you won’t receive a Form 1099. Still, reporting them is key. If balances exceed $10,000 in the aggregate any time during the year, you also must file a Treasury Form TDF 90-22.1, also known as an FBAR, separate from your tax return. These days the scrutiny is high, and how you transition from failures to report in the past is delicate. SeeUndisclosed Foreign Bank Accounts? They’re Even More Explosive Now.
4. Hire a Representative. Handling a tax case by yourself is usually a mistake. Hire an accountant or lawyer to handle it. Even simple audits can come off the rails or extend into other areas if you aren’t careful. See Should You Lawyer Up Against The IRS? You Bet.
5. Pay Taxes Later. Most tax planning involves timing. You want to accelerate tax deductions and defer tax payments, subject to constraints such as the constructive receipt doctrine. If you have a legal right to pay and say “pay me later,” it’s taxed now. But you can condition payment, such as refusing to sell your house or settle a lawsuit unless you are paid next year. See What To Buy And Expense Before Year End.
6. Pay Small Tax Bills. If you get a small tax bill, pay it even if the IRS is wrong. What’s “small” varies, but don’t risk an audit or dispute escalating by fighting over small dollars. See 5 Steps To Keep The IRS Out Of Your Hair.
7. Reply to Every IRS Letter Unless it Says Not To. This is common sense. Keep a good record. Often, fighting the IRS is about attrition. See Got A Tax Notice? Here’s What To Do.
8. Don’t Talk To the IRS if They Visit. If the IRS comes to your home or business, decline to speak and tell them your lawyer will call. Take their card and be polite but firm. See When IRS Criminal Agents Come Calling.
9. Don’t Lie. If you say anything to the IRS, don’t lie. See When IRS Criminal Agents Come Calling.
10. The IRS Can Audit for 3 years. The usual IRS statute of limitations is 3 years after you file your return. If you understate your income by 25% or more, the IRS gets 6 years. See IRS Statute Of Limitations—Is Your Return Safe?
11. Keep Your Records for 7 Years. Tax records are important. See Keep Tax Records In The Vault!
12. Keep Your Old Tax Returns Forever. Although you can probably throw out most tax records after 6 years, keep copies of your returns themselves forever. See Tax Return Filed? Now Consider Your Records.
13. Avoid Amending Tax Returns. Don’t take amending tax returns lightly. Amended returns have a high audit rate, especially if they request a refund. See 5 Simple Rules to Follow When Amending Your Tax Return.
14. You Usually Don’t Have to Amend Your Return. The IRS says you “should” amend your return if you discover a mistake after it’s filed. But there’s no legal obligation. The only time you really must amend is if you knew at the time you filed the original return that it was false. See Five More Tips For Amending Tax Returns.
15. If You Amend, You Can’t Cherry-Pick. If you decide to amend, you can’t cherry-pick which items to fix. The amended return must correct everything, not just the items in your favor.
16. File Returns Even if You Can’t Pay. Many taxpayers don’t file on time because they don’t have the tax money. They would be much better off if they filed on time. Payment can come later, and might be the subject of an IRS installment agreement. Penalties too will likely be smaller if you file on time.
17. Don’t Explain Too Much. Tax returns should be concise. If an explanation or disclosure is needed, keep it succinct. See Five Must-Do Steps Before Filing Your Taxes.
18. Don’t Attach Too Much. Attachments to tax returns should be limited to tax forms and, where required, plain sheets of paper listing additional deductions, income, etc. Don’t attach other documents. If the IRS wants documents it will ask. See Shhh, Home Office And Other IRS Audit Trigger Secrets.
19. Be Careful With Big Refunds. Getting a refund? Consider applying it to next year’s tax payments rather than asking for the cash, especially if it is large. You’ll have a lower profile with an initial or amended return. See Getting A Tax Refund? Ten Things To Know.
20. Get Some Advice. Whether you need practical procedural advice about a Tax Refund Too Good To Be True? Don’t Spend It, advice aboutIndependent Contractor Or Employee: Why It Matters, or you already know why tax opinions are valuable, get some advice from someone with experience in your issue. And don’t wait until the last minute.
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