Taxes
Ask Bob

Ask Bob About Taxes

?How should I prepare for a tax audit?
The best time to prepare for a tax audit is now. It is much easier to keep good records today than to try to recreate them two or three years later.

Usually a tax audit will specify the year being audited. Be sure to have all your records for the specified year organized and accessible prior to the audit. An auditor will expect you to instantly support any questioned items. Try to determine, in advance, which items the auditor intends to question, and have ready answers. Remember, the auditor's questions will stem from information you supplied on your tax return. Are your office supply expenses extremely high? The auditor may want you to substantiate these expenses with invoices and/or cancelled checks.

I suggest that you have your outside accountant present during the audit. Ask him or her for advice relevant to your situation. If you are nervous, consider having the accountant be your representative and don't attend the audit in person.

?Can I recover previous years' taxes if I have a loss?
A corporation will be able to carry- back a loss for up to three years in order to recover federal taxes previously paid. And the IRS will actually pay you in cash! If there is more loss than can be carried back, it can be carried forward for up to fifteen years. Most states do not permit loss carrybacks, but do allow loss carryforwards to the extent of any federal carryforward.

Similar federal rules apply to individuals who have substantial business losses. Most states, however, do not permit individuals to adjust for business losses.

?Can I delay filing my tax return?
Any corporation, S corporation, partnership, or individual can get an automatic extension of time to file a tax return by simply filing the appropriate federal and/or state form. Any tax due, however, must be included with the extension on the orginal date due. All taxes paid after the original date due are subject to interest charges. Inadequate payment with the extension request can also lead to additional penalties.

Although a tax return has been extended, all estimated tax payments remain payable as per the regular schedule.

?What if my estimated tax payments appear to be too low at a later date?
If you find during the year that your income tax liability is going to be greater than the estimated taxes you have paid will cover, you should revise any remaining payments to account for the increase. It is best to make any catch-up payments with the next payment due.