Wealthy Should Prepare for Audits by Keeping Organized Records
Wealthy Should Prepare for Audits by Keeping Organized Records
Expensive art collections, investment hobbies and offshore bank accounts may raise red flags when it comes to IRS audits. In 2011, the Internal Revenue Service audited 29.93% of taxpayers who reported more than $10 million of annual income . This percentage increased by 18.38% from 2010.
Although there is no way to completely avoid being selected for an IRS audit, there are steps you can take to minimize the likelihood of an audit.
- Be honest – Living by the simple rule of honesty will save a lot of stress. Report all income including; unreported interest, dividends or miscellaneous income. The IRS has record of all your 1099s, so be sure to report them. Omitting income will raise a red flag. Be sure to properly report all your expenses and deductions.
- Be organized – Keeping organized records is important. Properly record any expenses that will be deducted. Business expenses such as travel, meals, mileage etc. can be deducted, as long as they have been recorded. Keep all receipts, they will help to prove an accurate deduction. Be sure to give exact numbers versus rounding. When it’s time to submit your return, double check and make sure there is no missing information or signatures.
- Be prepared if you are self-employed – The IRS realizes that self-employment also increases the likelihood of unreported income. You must have proof of all income and business expenses if you are self-employed. Do not record personal expenses as business deductions.
- Watch your deductions – Taking deductions that are unreasonable for your income bracket may raise a red flag to the IRS. Be sure you have proper records for proof of all of your deductions.
- Avoid Fluctuation in Income – The IRS has a good idea of how much you make; if they notice a drastic change in your income this may raise another red flag. Be aware of reporting abnormally low income for your profession. On the flip side, be extra cautious if your income is over $100,000. IRS audits are 5 times more likely in this tax bracket.
- Watch your Number of Charitable Contributions – Donating to charities is important, but be aware that a red flag may arise if you have made a lot of contributions. Hold on to all receipts, particularly if you are donating five times as much as the average person in your income bracket.
- Use a Tax Professional – The best way to prevent or avoid an IRS audit is to use a CPA or accounting professional. These returns are often less likely to be selected for an IRS audit than a self-prepared return. A professional knows the laws and can help you to make sure that all proper deductions are taken and that all income is reported.
Taking these steps in preparing your return can help you to avoid possible red flags that could lead to an IRS audit.
 “IRS Audit Rate nears 30% for Those Making $10 Million and Up.” Bloomberg. Mar. 2012. Web. Sept. 2012. http://www.bloomberg.com/
We hope you found this article about “Wealthy Should Prepare for Audits by Keeping Organized Records” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Impact Venture Capital & GROCO’s “Venture Vision” Seminar 2 of 6 (To register FREE, click here.) This free online instructional seminar on January 11, 2023, at 10 AM is an excellent opportunity to learn more about the risks and rewards associated with venture capital (VC) investments. By covering topics such as the stages of funding,…
Introduction: In this interview, Alan Olsen, CPA and featured guest Bill Gombert discuss comprehensive financial planning and much more. Transcript: Alan Olsen Hi, this is Alan Olsen and welcome to American Dreams. My guest today is Bill Gombert. Bill, welcome to today’s show. Bill Gombert Thank you very much pleasure to be here. Alan Olsen So, Bill, you’re…
Introduction: In this interview, Alan Olsen, CPA and featured guest Brett Kaufman discuss Building Conscious Communities and much more. This Transcript of Alan and Brett’s discussion of conscious community building has been generated by software and may have inaccuracies: Alan Olsen So Brett in our segments here in American Dreams, we talked about pathways of life and things…
Insights Into Venture Capital Investing From Seminar 1 of 6 (To register for seminar 2 of 6 FREE, click here.) “In an era where financial landscapes are constantly being reshaped, it’s crucial for investors to stay ahead of the curve. The Venture Vision Webinar, a joint initiative by GROCO and Impact Venture Capital, recently hosted…