Written by Phoenix Tax Attorney Shad Brown
Tax Season has now ended for most taxpayers. As we all breathe a collective sigh of relief, here are a few pieces of advice to keep in mind the rest of the year so that next year is not such a mad scramble to the finish line.
I represent a number of clients in audits with the IRS and the Arizona department of Revenue. Most of the audits involve deductions that the client has taken but now does not have records support. These records can include business expenses, mileage deductions for personal vehicles, medical expenses and state taxes paid. If you hope to deduct it, make sure you can document it. We all think we can win the audit lottery and just estimate our expenses. It is never worth it when you are asked to substantiate your deductions. Do yourself a favor and document everything.
Many tax planning strategies require you to spend money (or save money) to save on your taxes. When you plan in advance you can spread these payments out over the year to soften the blow. Other tax planning strategies can be complex and take time to implement. By starting early you are more likely to have a positive outcome when your tax bill arrives. It is also easier to schedule a tax planning session with your tax attorney now than it will be at the end of the year with the masses of other clients who procrastinate until the end of the year. Do yourself, and your tax attorney, a favor and meet with them early to ensure that you are paying the least amount of tax you can.
Talk to Your Tax Attorney Before the Transaction
I recently heard someone bragging about how they had flipped some real estate after owning it 11 months. They had made $400,000 in profit. They sold the property without consulting with a realtor or a tax professional. They were even grinning ear to ear as they said it. They certainly were not grinning when they found out that if they had held the property one more month, the gain would have been taxed as long term capital gain (and a much lower rate) rather than as short term capital gain (which is taxed as ordinary income). Depending on tax rates, that could have made an $80,000 difference. Tax advice and planning will almost always pay for itself multiple times over. Do yourself a favor, talk to your trusted tax attorney before entering into any transaction that could have tax consequences. Your wallet will thank you.
If you find yourself being audited or fighting with the IRS or state tax authorities, don’t fight alone. The trusted tax attorneys of the Dana Law firm are your best advocate in all tax planning and controversies.