How to Defend Tax Deductions
With the exception of the possibility of a monster under the bed, nothing has caused more unnecessary fear in humans than the idea of an audit. Here is a short guide on how to defend tax deductions.
The most important part of any “how to defend tax deductions” plan is organization. Organization takes place at two times. The first is called the “all along” stage. When you get in the habit of keeping your financial affairs organized, the record keeping process is simplified greatly. This helps when it comes time to prepare your tax return and it helps again should you suddenly be faced with an audit. Neither of these events is the right time to begin. You have to be organized all along.
Even so, when you are preparing for an audit and actually are going to have to defend a certain deduction, get organized more. A confident and organized presentation is going to show your auditor that you knew what you were doing and will confine the issue to the legitimacy of the deduction and not the record keeping supporting it.
If you used a tax preparer or tax preparation service, they should be involved. If the deduction was their idea, the defense of it is their responsibility. So, get them involved early and pay close attention to their advice. If you are on your own, you need to look like you are an accountant in a very strict and careful company. Clearing your files of unnecessary paperwork should be part of the organization procedure. You do not want to give the auditor more information than he has requested. Doing so is not unlike loaning ammunition to your enemy in a battle.
It is also important to not only not appear frightened, but actually to not be. Unless you were trying to do something grossly illegal, to commit fraud, you really have little to worry about. The result of an audit that goes badly, or a failure to defend a deduction results in an adjusted tax return and the possibility of owing additional taxes. While this is bad, you will not be taken outside and shot if your deduction is disallowed.
The Internal Revenue Service and the Tax codes represent something with a complexity level that exceeds just about anything known to mankind. There is often no telling what deductions will be allowed, and there are some examples of very strange deductions being found perfectly acceptable. There are also some cases where something that seems to everyone to make perfect sense runs afoul of some obscure rule. If you think it is just and you have the paperwork or ability to defend it, go for it. You have nothing to lose anyway, and the chance of getting to keep a few more of your hard earned dollars.