January 11, 2010
"The point to remember is that what the government gives it must first take away." ~John S. Coleman, address, Detroit Chamber of Commerce, 1956
"Dear Mr. & Mrs. Hinman:
Your federal return for tax year 2008 has been selected for examination."
So began my latest love affair with the thieves with congressional backing, I mean the IRS. Since I received that letter in early December until the middle of last week, my wife and I spent hours digging through file cabinets scattered about the house looking for anything and everything good ol' Uncle Sam might want to see regarding our finances.
Additionally, I scoured the internet to try and see what we could expect once the agents actually set foot in our house. (Yes, they do come into your house and set up shop.) From having a set amount of money they planned to extract from you (regardless if your return was correct or not) to threats of violence, the internet was rife with horror stories, most likely from disgruntled fellow auditees (using artistic license with that last word) who truly had something to hide.
Nonetheless, I was a little freaked out about how the audit would go. It was my first full year being self-employed, and even though I had the assistance of TurboTax, did I do everything right? Did my deductions pass muster? Should I have issued 1099s to those I participated in deals with? Well, last Monday and Tuesday, I found out.
Two agents spent a full day in my basement (yes, it's furnished, and no, I don't have any 'Silence of the Lambs'-type apparatuses down there) going over my return with a fine-tooth comb. Three different times throughout the day they asked me to sit with them and go over this deposit, that expenditure, etc. They were professional and courteous, and very thorough.
Originally, they had planned to return to my house on Tuesday to finish the audit. As they left Monday evening, they told me they wanted to check a few things, but didn't really see the need to come back to the house the following day. They would give me a call the next day and give me status. (A testament to providing everything they ask for (and then some) right up front.)
Tuesday afternoon they called and said they had no proposed changes to my return, nor did they find any errors. I didn't necessarily feel relieved; vindicated is probably a better word. I knew they wouldn't find any deliberate inconsistencies - I complain about taxes as much as anyone, but I pay my fair share. My concern was making a mistake and being subjected to further tax liability that I didn't see coming. To that end, I was very happy when I got the letter on Wednesday that said:
"Dear Mr. & Mrs. Hinman:
We have completed the examination of your tax return for 2008. We are pleased to inform you we're proposing no change to your tax return."
Audits are scary things. This was my first one, and the best advice I can pass along is this: Provide full disclosure and you'll never have to worry about covering your tracks. If that sounds like a lesson from your childhood, it probably is.
As we head into tax season, I suggest you come to grips that we all have to pay Uncle Sam. Worse, our tax liability will only go up as the time to pay the piper comes around. All these stimulus monies have to come from somewhere. (What? Did you think that was free money? HA!)
I'll leave you with a funny anecdote I read while doing my research on the audit process. Did you ever notice that when combined, "The IRS" becomes "TheIRS"?
Make it a great week.
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