Survival Tips For Taxpayers

These suggestions for staying out of tax trouble are offered by the California Society of Enrolled Agents (CSEA). Enrolled Agents are professionals licensed by the federal government to assist with tax planning, preparation and representation.

• Respond to notices from tax agencies, like the IRS, in a timely manner. (Failure to do so is a common and critical mistake.) A situation that might be easily resolved if promptly addressed can become a very serious problem if ignored.
• Do not automatically accept a tax agency's interpretation of a tax situation. The tax agency may interpret the law to its advantage, not to the advantage of the taxpayer, or may have incomplete or incorrect information.
• If telephoned by someone claiming to represent a tax agency such as the IRS, ask the caller to put any request in writing. Calls like this are sometimes fraudulent. Do not give the caller any information (like social security, bank account or credit card numbers).
• File your tax return on time even if you cannot pay the amount due. The federal penalties for late filing can be 10 times the penalties for late payment.
• If you cannot pay the tax due, consider the option of an installment payment arrangement.
• Be careful about paying taxes with credit cards. The credit card company will charge a processing fee in addition to interest.
• Keep records of mileage, travel and entertainment expenses if they are going to be claimed as deductions. The records should simply answer the questions "who, what, where, when, why?" and note the business relationship.
• Have adequate documentation of tax deductions (such as charitable contributions) you claim. Do not determine the amount of deductions by asking yourself questions like "what did I spend last year?" or "what's an average amount?" If you are audited, such methods will not be viewed favorably.
• Do not assume it is a good idea to go to your own audit. (You may choose to be represented by a tax professional.) If you go, give only specific answers to questions asked.
• Try to become familiar with important tax language such as "non-refundable credit" and "adjusted basis." This is a key to understanding and correctly interpreting tax rules.
• Be aware that special tax rules apply to situations like self-employment, real estate and stock transactions, rentals and vacation property.
• Do not assume tax preparation software will automatically calculate a correct result. If your answers to the software's questions are wrong (you may have misunderstood the question), the result will be wrong (and could trigger an audit).
• Employers must pay employee payroll taxes on time. Failing to do so is a major cause of serious tax trouble.

This information is provided as a public service by the California Society of Enrolled Agents, 3200 Ramos Circle, Sacramento, CA 95827.