Audits are laborious, even for those of us with great accounting skills. That is why you should always do your best to avoid any common triggers that lead to income tax audits. Here are five things that might make you more likely to be personally audited.
1. You filed an incorrect tax return
It is pretty simple: don?t make errors on your income tax return. There are countless companies that will prepare your return for you at a reasonable price. There is also online software that you can use to prepare your own return. There is really no excuse for making irreparable errors in 2012. If the Canada Revenue Agency finds that your reported income does not match up with its records, you could be in trouble.?
2. You are self-employed
Those who are self-employed run a higher risk of being audited than those with a steady salary stream. But you can?t really help being self-employed, if that is your chosen career path. What you can do, however, is minimize any red flags, like excessive deductions. Specifically, be careful with deductions relating to keeping a home office, auto expense claims, and advertising expenses.
3. You make too many deductions
Excessive deductions are not only a problem for self-employed Canadians. If your charitable donations exceed what is the average for your income bracket, for example, you might come under scrutiny. Be sure to keep all relevant information, including dates, amounts, and receipts.
4. Your way of living does not add up
According to the Blunt Bean Counter blog, run by Canadian tax expert Mark Goodfield, the CRA loves to audit people based on their net worth. ?These are audits undertaken because you live in a 3,000 square foot home, have a Porsche and kids in private school, and yet show minimal income on your tax return,? he writes. The CRA often stumbles on these situations, though a scorned lover or employee sometimes tips it off.
5. You have an enemy
One common way the CRA receives tips on tax fraud is from disgruntled former employees, lovers, or friends. ?Anyone who informs the government of possible tax evasion or fraud will be taken seriously,? Gabrielle Loren, a tax specialist from North Vancouver, writes in an article on stason.org. ?If you are implicated, an audit may be conducted no matter how ?clean? your tax return and financial statements appear.?
These are only five common triggers. There are many more, including your name showing up in someone else?s audit or on a computer-generated list. If you have any questions about your tax return, contact a professional accountant. It is better to be safe than sorry. Check out what the CRA has to say about the audit selection process here.
Have you ever been audited? Do you know why you were chosen?
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Source: http://blog.yourmoney.ca/2012/03/5-common-triggers-for-a-personal-income-tax-audit.html
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