During tax season, the major focus is on correctly preparing your tax return. This requires different kinds of records, from receipts to log books and more. But once a return is filed correctly, some people get the urge to throw their records away and be done with it. Don’t give in to this temptation.
Even when your return is correctly prepared and filed, taxpayers should still retain their supporting records. Your accountant doesn’t necessarily have to review every supporting record in order to claim a deduction, but these records are important to keep on hand in case of an IRS examination.
This is especially important when it comes to the deduction of non-cash charitable gifts. Contribution values are of particular importance in charity values. In one case, a taxpayer claimed the correct tax deduction and correctly carried forward the disallowed amount due to income. However, he didn’t consult a tax professional, who should have been able to inform him of the restriction for charitable contributions are not to exceed 50 percent of adjusted gross income. In some cases, restrictions impose limits of 30 or even 20 percent of taxpayer income.
Because this particular taxpayer failed to meet these criteria, he was reviewed by the IRS and the entire charitable donation was disallowed, even though the amount claimed was accurate. In this case, the deduction on his 2003 return exceeded $4 million, which required an appraisal to substantiate the value of the property that was donated. This taxpayer was an appraiser of real estate who did the assessment of value himself. Unfortunately again, if he had consulted a tax specialist, he would have known that an independent appraisal is required for tax purposes.
As this case illustrates, even though a person may be a professional in a certain field, it’s best to retain a tax specialist who is an expert in tax preparation. In the end, it often saves time and money for the taxpayer trying to file a return without assistance. In this case, the taxpayer could have saved millions of dollars, simply by consulting a tax expert.
If you’d like to speak with a Beaton Accounting tax representative for professional advice on your taxes, call us today for a FREE consultation: 631-921-6894.
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