IRS Audits Increase; Target the Wealthy
I advise everyone to stay ahead of the game when it comes to his or her taxes. With clients who owe back taxes over several years, I think to myself far too often how easily these problems could have been avoided: When you earn income, and none of it is withheld for taxes, put roughly 35-45% aside for taxes. It’s a very rough estimate, as the federal rate depends on your tax bracket, and each state has its own set of laws for taxes (discussion on state taxes coming soon).
Most of my clients were either lazy or uninformed when it came to timely paying their taxes. Some people might get away with it, but those who don’t pay the price in interest and penalties, and possibly jail time. You may have heard the story about Wesley Snipes.
The Associated Press recently reported that the IRS increased the number of submitted returns audited by 11 percent this year, targeting wealthier taxpayers. As fellow tax blogger Peter Pappas advises:
[I]t’s essential that taxpayers hire qualified, experienced tax preparers to make their returns. And remember, if a would-be preparer brags about his ability to get his clients refunds, make a b-line for the door and don’t look back. He’s almost certainly fudging numbers on his clients’ returns and that’s an invitation to an IRS audit.
Poker players can earn a lot of income in a tax year, making it more likely the audit letter comes in the mail. Pay your taxes, maintain good records, and the results will likely be favorable.