From the first time you file with the IRS, or Infernal Revenue Service as my father affectionately refers to them, you dread the letter that greets you with the news of an audit.
While there are many things that can trigger and audit, let me tell you what caused mine.
In 2007, Buck and I had yet to discover the benefits of couponing and living a more frugal lifestyle. As a matter of fact, we were on the brink of financial ruin but did not realize it. (Hindsight is always perfect!) We were moving credit card balances around and getting cash advances to pay for other bills, to cover business expenses or to purchase whims of the moment. We took a trip to Chicago (for business) that we could not afford. We even got a personal line of credit in order to consolidate our credit card debts only to run the cards back up. (Consolidation is never a good idea in my book!)
So, tax time rolls around and we did everything we thought we were supposed to do. Each receipt was painstakingly recorded. We did not take anything or claim anything we should not have. However, we failed to mention our loans. If it ever occurred to me to mention it on our taxes, I probably thought that the IRS would find a way to tax us on it and skipped that part of the form. I honestly do not remember.
When some computer in a dusty government office rolled our numbers together and they saw that our expenses were way past what our income was, an audit was triggered. They want to know from where the extra income came and why we did not pay taxes on it.
It would have been so much easier to mention the loan when we filed because now, the audit has opened up another can of worms that we did not know existed. And, for the record, loan proceeds are not taxable income. Wish I had paid attention to that in 2007.
More to come tomorrow…
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