Issue link: http://cp.revolio.com/i/142672
Maximizing Your Personal Deductions If your business is structured so that the income is directly yours, or passed through an entity to you to be reported on your personal tax return, and your deductions fall below the threshold that it would serve you to itemize your tax deductions on your personal return, you'll just be taking the standard deduction. According to the IRS website, for the tax year 2012 that amount is $5,950 for a single person or a married person filing separately, and $11,900 for a married person filing jointly or with a dependent. On the other hand, if you have more than one child or other family member who is your dependent, if you're paying a mortgage, if you have steep medical and dental expenses, casualty and/or losses due to theft, have made substantial contributions to charity, have contributed to your own retirement account, or even bought a new car, you may be better off itemizing your deductions. There are a lot of available tax credits and outright tax exemptions for certain circumstances, such as for people who have retired, people who have drawn unemployment payments, child care credits, adult education credits, credits for making your home energy efficient, and earned income credits. If you're unsure of all the deductions you're entitled to, this is not the time to be stubborn; pay a tax professional to figure your taxes. I'd be afraid not to. In spite of the fact that I do my own daily bookkeeping for my business and my husband's business, I feel more secure in turning my taxes over to a knowledgeable professional who is going to be sure I get to keep as much of my money as possible. The deductions and credits she finds for me are worth much more than I pay her to do my tax forms. Surviving an Audit Few words strike as much fear into a human being as, "You've been chosen for an audit." Don't be scared; by definition, an audit is simply an examination of your tax return. According to Jeff Schnepper, a popular columnist on the Microsoft Money Network, the biggest reason people receive a letter from the IRS is because of human error. Most audits are conducted through the mail; it's highly unlikely the taxman will come knocking at your door unless the IRS thinks you're running a cartel and laundering money. Schnepper says that every year the IRS mails out more than 1 million letters to taxpayers who fail to sign their tax returns. In reality, small businesses are much more likely to be audited than big companies, and that applies to service businesses in particular. The assumption is that small service businesses are much more likely to receive cash payments that may go unreported. You can avoid being audited by checking your numbers and being sure your tax return is free from mistakes (another reason to hire a professional). Don't ever brag about cheating the IRS—they'll give whistle-blowers as much as 30 percent of the tax they collect from the deliberately dishonest. Also, make sure your tax return matches your supporting documentation and remember that most audits take place within 18 months of filing. Generally, there is a threeyear statute of limitations for the IRS auditing a tax return (so you need to keep your records for at least that long) and a 10-year statute of limitations for the IRS collecting tax. The bottom line, if you are audited, be cooperative. Remember, the steps to stressing less about taxes and keeping more of your money are simple: get organized, be prepared, and seek the proper help. SPH Laura Allen is the author of Plain & Simple Guide to Therapeutic Massage and Bodywork Examinations, One Year to a Successful Massage Therapy Practice, and A Massage Therapist's Guide to Business. Allen is the owner of THERA-SSAGE, a continuing education facility and alternative wellness clinic of more than a dozen practitioners of different disciplines in Rutherfordton, North Carolina.