Five Things Every IRA Owner Should Know Schedule Your Retirement Planning Call

YEAR END Tax Planning With roughly 6 weeks to go until we can say goodbye to 2020, now is a great time to review your personal situation and consider any year-end adjustments to minimize your short and long-term tax liability. We have identified five year-end planning strategies you can use to minimize your tax burden. Maximize Your Retirement Account Contributions If you have a 401(k), 403(b) or 457 retirement account you can contribute up to $19,500 ($26,000 if you are over the age of 50) for 2020. Contributions to any of these plans must be made before January 1st to apply to 2020. Before you contribute to your 401(k) you should watch our 4-minute video Why 401k Plans Are Sub-Optimal . You can also contribute up to $6,000 ($7,000 if you are over the age of 50) to a traditional or Roth IRA for 2020 depending on your income. Contributions to traditional or Roth IRAs can be made up until April 15th of next year and still be applied to your 2020 contributions. If you qualify for a Health Savings Account you should max out your contributions to the HSA before making further contributions to your other retirement accounts. This is because HSAs allow for a tax deduction for your contributions, tax-free growth of the assets in your account, and tax-free distributions when used for medical expenses. With significant medical expenses almost guaranteed later in life, an HSA combines the best of both traditional and Roth retirement accounts. For more on HSAs read “Six Myths About Health Savings Accounts ” Take Advantage of Tax-Free Capital Gains If your taxable income is below $40,000 (80,000 if you file a joint return) then your long-term capital gains tax rate is 0%. If your taxable income is below these thresholds and you own stocks or other investments that have appreciated in value you can take advantage of this 0% tax rate by selling your investments with long-term capital gains and not pay any federal income taxes. If the sale of your investment pushes your taxable income above the thresholds for the 0% bracket you will pay 15% on the amounts above the threshold but will not pay taxes on the amount up to the threshold. While capital gains below these income thresholds are tax-free, the proceeds from the sales will still increase your taxable income for the calculation of certain tax credits such as the premium tax credit for health insurance. If you are currently receiving the premium tax credit, selling your investments could reduce the amount of the credit that you qualify for. Set Up a Donor Advised Fund The Tax Cuts and Jobs Act doubled the standard deduction while also limiting or removing various itemized deductions. As a result of these changes a much greater percentage of taxpayers will be taking the standard deduction between now and 2025 when the tax cuts expire. This also means that meaningful charitable donations may have little impact on your tax return. This is because a much larger portion of your charitable deduction is being used to reach the standard deduction threshold before you can realize any tax savings. One way you can work around this new limitation is to set up a donor advised fund. With a donor advised fund you can make a large contribution to the fund in one year and then make donations out of the fund to your charities of choice over the course of several years. With a donor advised fund you get a tax deduction in the year you contribute to the fund, regardless of when the fund distributes money to a charity. For example, if you typically give $5,000 each year to your church, you can choose to contribute $15,000 now to a donor advised fund and distribute $5,000 out of the fund each year for the next 3 years. Then refill the fund at the end of the 3rd year. By bunching your contributions into every 3rd year, you can prevent the bulk of your charitable donations from being absorbed by the standard deduction threshold. Consider a Roth Conversion Contributing to a traditional IRA or 401(k) provides tax savings today by pushing the tax liability into your retirement years. This strategy can make sense when you are likely to be in a lower tax bracket in retirement. However, the Tax Cuts and Jobs Act has created one of the lowest tax environments our country has seen in decades. With that in mind there is no guarantee that you will be in a lower tax bracket at retirement. And with our national debt skyrocketing, you could find yourself in a higher tax bracket when you retire, even if your income is lower than it is today. With higher tax rates likely in the future, you may want to consider converting some of your 401(k) or traditional IRA funds into a Roth IRA, paying taxes now in today's low tax environment in order to realize tax-free distributions later in retirement. With the results of the 2020 election, time could be running out to take advantage of the low tax rates. For more information on why a Roth conversion may be a limited time opportunity watch our 3-minute video Tax Efficient Retirement Planning. Converting your traditional IRA into a Roth IRA is an option for everyone, even if you are above the income threshold to make a normal contribution to a Roth IRA. You will also not be subject to the 10% early withdrawal penalty you would face when taking early distributions from a traditional IRA. For more information on why a Roth IRA could be the right choice watch our 4-minute video The Big Picture . Return Your Required Minimum Distributions If you are over the age of 70 ½ then you are required to withdraw a certain amount from your traditional IRA each year through Required Minimum Distributions (RMDs). These RMDs can create an unwelcome tax liability. Fortunately, as part of the CARES Act, all RMDs for 2020 have been waived. This means that if you have not yet taken your RMDs for 2020 you can choose not to take any for the year. If you already took your RMDs for the year then you have a few potential options to undo them. Option 1: Indirect Rollover When you take funds out of your IRA you have 60 days to either return the funds to the original IRA or invest them in another IRA through what is referred to as an indirect rollover. If you return the funds or reinvest them in another IRA within the 60 days you can avoid any taxes or penalties that would have otherwise been due on the distribution. You can only complete one indirect IRA rollover per year. Option 2: Coronavirus-Related Distribution If you took your RMDs earlier in the year and can no longer qualify for a 60-day rollover, you may still be able to undo your RMDs by qualifying them as a coronavirus-related distribution (CVD). With CVDs you can take up to $100,000 from your traditional IRA at any point in 2020 and you have 3 years from the date of the distribution to recontribute the funds and avoid paying income taxes. If you don’t recontribute the funds you can also choose to spread the tax liability over the next 3 years instead of paying it all on your 2020 return. To qualify a distribution as a CVD you must meet at least one of the following criteria: You are diagnosed with COVID-19 using a test approved by the CDC Your spouse or dependent is diagnosed with COVID-19 using a CDC-approved test You are experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by you due to such virus or disease, or other factors as determined by the secretary of the Treasury. As you can see, even if you do not meet either of the first two criteria, just about anyone in the United States should be able to qualify under the third criteria given that almost every state issued a shelter-in-place order earlier this year. By reclassifying your RMD as a CVD you can either avoid the taxes altogether by recontributing your distribution within the next 3 years, though we would recommend recontributing before the end of the year to keep everything simple, or spread the tax burden of the distribution over a 3-year period. Summary Now is a great time to review your financial situation and determine if there are any year-end adjustments you should make, as there should be very few income surprises between now and year-end. Taking the time to review your situation and applying some of the strategies we just shared could help you significantly reduce your short and long-term tax liabilities. Read more articles Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

Three Pricing Options To provide our small-business clients with flexibility in how they work with us, we offer three different pricing options for our services. 1. Additional rental properties will be charged at $50/property 2. Processing of monthly payroll includes Federal 941 Quarterly Payroll Filing State Quarterly Payroll Filing Year-End 940 Payroll Filing W2 Issuance to Employees 1099 Issuance to Independent Contractors 3. Our Tax Savings Manual includes strategies to lower your federal tax bill. Historically we have found that we can save small-business owners between $5,000 and $12,000 per year. 4. Two conference calls throughout the year to discuss: Estimated Payments P&L Discussion Adjustments to Officer Compensation Misc. Business and Accounting Issues 5. Requires a three year agreement.

WHITE PAPER INTRODUCTION Our 1-2-3 case involves a husband and wife client of ours who received an unpleasant surprise when they filed their 2017 tax return. The husband and wife are both public servants, between them they are earning $225K per year. On top of this they received another $40K in interest and trust income during 2017. Anticipating a large tax bill, they decided to purchase a rental property and use the expenses they incurred to offset some of their taxable income and reduce their tax bill. During the year they spent $40K on the property. Based on advice they received from coworkers as well as another accountant they consulted, they believed they would be able to deduct this entire $40K on their 2017 tax return. THE CHALLENGE Unfortunately, when they came to us we had to tell them that not only could they not deduct the full amount, they would not be able to deduct any of their expenses on their current year return. There were 3 reasons they could not deduct the $40K they had been led to believe they would be: Cap on Losses from Rental Properties. What this couple was not aware of when they decided to purchase this rental property to write off the expenses, is the $25K limit on rental property losses that can be deducted per year. This means that at least $15K of the $40K they spent would need to be carried forward to a future year. The only exception to this limit would be if one of them qualified as a real estate professional, which they do not as this property is the only activity they have in the real estate field. Capital Expenditures. A large portion of the $40K came from improvements to the property preparing it for rent. These expenses cannot be deducted in the year they are paid but must be capitalized and depreciated over the useful life of the property, in the case of a residential rental property 27.5 years. Income Limit on Passive Losses. The final nail in the coffin for this couple’s rental loss deduction is they failed to realize there is a phase-out threshold for passive losses. Once a married couple, filing a joint return, have adjusted gross income above $150,000 they cannot take a loss for passive activities. Instead those losses are carried forward to future years until their income drops below the phase-out threshold. THE SOLUTION This couple was understandably not happy when we informed them that they would not be able to deduct any of the expenses they had incurred on the property on their 2017 tax return. They explained to us that one of the primary drives behind their purchase of the property was the tax break they expected to receive. Had they consulted with us during the year before making this purchase we could have warned them they would not be able to realize any tax breaks in the short term from the property and could have provided them with some alternative methods to reduce their tax burden for the year. By maxing out their respective deferred compensation accounts they could have reduced their taxable income by $16,000. Contributing to a Health Savings Account could have further reduced their taxable income by $7000. By failing to consult with us before making this decision they missed 3 red flags that show they would not be able to reduce their taxable income by purchasing this property. To avoid missing your own red flags be sure to seek counsel from Monotelo Advisors before making major investment decisions. Save as PDF View More White Papers

July 2019 SMALL BUSINESS TIPS Quarterly: Oct 17 Deducting the Business Use of Your Vehicle If you operate a small business and you drive regularly for that business you have two choices: you can either drive your personal vehicle and reimburse yourself for the business portion of the associated costs, or you can transfer the vehicle to the business and pay all of the associated costs directly from the business. Which of these options you choose depends on the vehicle and how you use it within the business. There are no inherent tax benefits to titling your vehicle into your business, in fact doing so limits your options in how you deduct the cost of that vehicle. However, when your vehicle is 100% business use then titling it to your company can simplify your record-keeping requirements and allow you to pay for your vehicle costs directly out of your business account. The first step to decide where you should place ownership of your vehicle is to determine which vehicle cost deduction method is more beneficial in your situation. Standard Mileage Rate vs Actual Expenses There are two primary methods for deducting the cost of using a vehicle for business purposes: The standard mileage rate method and the actual costs method. Standard Mileage With the standard mileage rate you can deduct a specific dollar amount for each business mile you drive during the year (for 2022 the standard rate is 58.5 cents per mile). The standard mileage rate is used more often since it only requires you to keep track of the miles you drive throughout the year and does not require records of any other expenses. However, the standard mileage rate can only be used for a vehicle that is in your personal name. If your vehicle is titled to your business, you are required to use the actual expense method.. Actual Expense With the actual expense method you can deduct your out of pocket costs for fuel, insurance, repairs, etc. You can also deduct the cost of the vehicle by depreciating it over its asset life (typically 5 years). The actual expense method requires much more thorough record-keeping. You need to keep track of each vehicle related expense throughout the year, and if you use the vehicle for both personal and business use then you also need to keep track of the total business and total personal miles for the year Choosing the Right Method If your vehicle title is in the name of your business you are required to use the actual expense method. However, if the title is in your personal name you can choose which method to use in the first year. You can switch methods in the following years, but there are additional restrictions to do so. It is in your best interest to take the time in the first year to determine which method will be more beneficial. The standard mileage rate method is intended to simplify record-keeping requirements while still providing for an accurate deduction for the cost of using your vehicle in your business. To that end, in many cases the standard mileage rate method should provide the same or greater tax benefits as the actual expense method. However, there are specific factors that can make the actual expense method more beneficial: Price of Car: Since you can deduct the cost of a car over several years with the actual expense method, a more expensive car increases the probability that the actual expense method will be more beneficial Fuel Efficiency: With the standard mileage rate you get the same deduction no matter how many miles you get per gallon, so a less efficient vehicle will eat away at a greater portion of your allowed deduction. Highway vs City: If you are driving primarily in a large city you are likely putting much fewer miles on your vehicle while still spending the same amount on car payments, insurance, etc. If any of these factors apply to your situation then you may receive a greater benefit through the actual expense method. It is also worth noting that under the actual expense method you will receive a greater tax benefit in the first few years while you are depreciating the cost of the vehicle. Once the vehicle is fully depreciated your deduction will drop significantly. Under the standard mileage method your deduction will be relatively consistent subject only to small changes in the standard rate each year. Summary If 100% of the use of your vehicle is for your business and you have large vehicle costs either from buying a newer car or driving mostly in the city, putting your vehicle title into your business can simplify your record-keeping requirements without sacrificing the benefits of the standard mileage rate method. If you use your vehicle for both personal and business needs or you drive an older vehicle with a low market value, you may want to keep it in your personal name to preserve the option to use the standard mileage rate. Previous Article Next Article

Charitable giving increases at the end of the year. If you are making donations keep these guidelines in mind to get your full tax benefit. Making The Most Of Your Charitable Donations As we approach the holidays you are most likely busy planning visits to family or getting ready for your holiday shopping. You are also likely planning to give some of your money or property to charity. Many charitable organizations report that they receive a majority of their donations in the last three months of the year. With this in mind, we want to share with you some simple guidelines to be aware of to make sure that you are properly rewarded for your generosity come tax season. There are two different types of donations that you can deduct on your tax return, donations made with cash, and donations made with non-cash items such as clothing, furniture, or food. DONATIONS MADE BY CASH Once you have determined that the organization you have chosen meets the five basic guidelines, you need to make sure that you have proof of your donation. This can be accomplished with one of the following: A receipt or other written document from the organization, showing the name of the organization, the date of the contribution, and the amount of the contribution A cancelled check or credit card receipt that shows the name of the organization, the date of the contribution, and the amount of the contribution. Keep in mind that you can also donate to most governments within the United States, if you ever feel inclined to pay more in taxes. (In which case we may not be the firm for you) NONCASH DONATIONS Noncash donations typically involve dropping off outgrown clothes or unwanted furniture at your local Goodwill or Salvation Army. The guidelines for determining if noncash donations to an organization are the same as the guidelines for cash donations. To determine the amount of a deduction you can claim for your noncash donations you need to know the Fair Market Value of the items. The Fair Market Value is the amount you could reasonably expect to receive if you sold the item instead of donating it. If you need help determining the value of your items, you can use Goodwill's Valuation Guide . When you make a donation to Goodwill or a similar charity, you should make sure you receive a receipt and keep a record of the items that you donate. This will ensure that you can take the tax deduction to which you are entitled. FIVE BASIC GUIDELINES to keep in mind when determining which donations are deductible: 1. Donations must be made to a corporation, trust, community chest, fund, or foundation. This means that donations to an individual, or a group of individuals is not deductible. For example, donating to a group of doctors who are going to the Philippines to provide medical care is not deductible, but donating to an organization that will send doctors to the Philippines is deductible. 2. The organization must be created or organized in the United States. The organization can still operate overseas, as long as it is based domestically. 3. It must operate for religious, charitable, scientific, literary, or education purposes, for the promotion of amateur sports, or for the prevention of cruelty to children or animals. 4. It must not operate for the profit of a private shareholder or individual 5.It must not engage in political lobbying Through the internet, it is easier than ever to give money to those in need. Most charitable organizations now have a website where you can donate online. This surge in online donations has led many to donate smaller amounts to various organizations, rather than one large donation to a specific organization. While this provides donors the freedom to give to the cause they most believe in, it has also blurred the lines between what is a tax-deductible donation, and what is not. To help determine which donations are deductible, see the center box. Read more articles Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

JULY 2017 MONOTELO QUARTERLY AVOID THE HEADACHES and Penalties Associated with 1099 Reporting When a small business hires an employee, there are a number of expenses that are incurred in addition to the hourly wage. This could include the employer-provided benefits, office space, along with the technology and other tools required to do the job. The employer will also have to make required payments and contributions on behalf of employees, including: The employer's share of the employee's Social Security and Medicare taxes, which totals 7.65% of the employee's compensation State unemployment compensation Workers' compensation insurance Depending upon the industry, the additional contributions could increase your payroll costs by 20% to 30% - or more. You can avoid these expenses by hiring an independent contractor to do the same work. The additional contributions could increase your payroll costs by 20% to 30% - or more. However, there are certain requirements that must be followed in order to avoid the headaches and penalties associated with 1099 reporting. WHAT AND WHEN DO I HAVE TO FILE? Businesses are required to report all income to the IRS for its employees and any independent contractors. For employees, a W-2 is required to be filed. Independent contractors on the other hand, get a little more complex. To make matters worse, congress recently passed the Path Act, and moved up the filing deadline for W-2's and certain 1099's. The required date to provide W-2's and 1099's to employees and independent contractors is January 31. The deadline for submitting these forms to the government is also January 31. THREE STRATEGIES TO AVOID 1099 HEADACHES The easiest way to avoid the penalties, and filing headaches caused by issuing 1099's to independent contractors is to structure your business activities to minimize the number you must issue, and prepare them in advance, if you do have to issue them. STRATEGY #1: Choose contractors that operate as corporations. Your business is not required to issue 1099's for payments made to corporations, S corporations, or LLC's that elect corporate status for tax purposes (unless the corporation collects attorney fees or payments for health and medical services). STRATEGY #2: Make payments to independent contractors with a credit card, or a third-party payment network like PayPal. Shift the burden of reporting this income to the credit card company or the third-party network. They are required to report the payments on Form 1099-K. STRATEGY #3: Require the independent contractor to provide you with a W-9 upfront before making any payments to them. Here are the benefits: You will know if a 1099 filing is required, because their business type is disclosed on the W-9. You will know whether an LLC is classified as a corporation for federal tax purposes, and excluded from 1099 reporting. By getting the W-9 upfront, it eliminates the need to chase the contractor down for the required information if you need to file a 1099. Once the contractor is paid, your leverage for getting the information is gone. If an independent contractor refuses to provide you with a taxpayer identification number (TIN), and you pay the contractor more than $600 during the calendar year, then you are required to withhold federal income tax on payments made to that contractor. If you do not withhold, your business owes the tax, and it is on you to prove the contractor paid the tax. January 2017 Save as PDF October 2017

What sets Monotelo Advisors apart is our unique focus on planning ahead to reduce your tax burden every year. Let us help you plan for retirement. Planning for retirement can be stressful, but it doesn’t have to be when you have a step-by-step process in place to guide you. Schedule An Appointment and get started Want to get started or learn more? Schedule a meeting, over the phone, Zoom or in person. Schedule an Appointment Learn More What We Offer Values-Based Retirement planning When your values are clear, your decisions are easy. That’s why your financial plan needs to start with your values, continue with your life goals, and wrap up with a clearly-defined road map to get you there. Explore how our planning process will provide you with a road map to having all your financial decisions in perfect alignment with your most deeply held values and life goals, by scheduling a no-obligation introductory call. Get Started what we offer Bring Alignment to All Your Financial Decisions When your values are clear, your decisions are easy. Peace of mind begins when you have clarity about your values and goals. Peace of minds arrives when there is complete alignment between your values, your goals, and all your financial decisions. Reduce your lifetime tax liability Health care and taxes are two of the largest expenditures for retirees. You have little control over one, but enormous control over the other. Our planning process will help you reduce your lifetime tax liability so your money is freed up to allocate in ways that bring you the most joy and fulfillment in retirement. Increase the productivity of your assets Having a partner who can come alongside you to help you maximize the productivity of your assets and navigate the changing phases of retirement can empower you to live your best life possible and leave a meaningful legacy to the people and organizations you care about. Peace of mind up to and through retirement Having a comprehensive financial plan in place brings you confidence that all the pieces of the puzzle are working together for your best life possible. Once your personal retirement plan is complete, we will walk with you to implement and monitor your plan. How We Help Get Started Schedule a Meeting and Prepare Your Financial Documents Schedule a meeting for a day and time that work for you. Prepare to spend 90 minutes with us and bring all your financial information to that meeting, including your tax returns, investment statements, mortgage information etc. Your Financial Road Map Meeting The road map process begins with the initial meeting. In this meeting we will help you will identify your most deeply held values and life goals. We spend the time necessary to discover the things that matter most to you so we can bring perfect alignment between your most deeply held values, your life goals and the all your financial decisions. The Plan A comprehensive financial plan is so much more than a risk tolerance survey and an asset allocation model. You plan will start with your values and your goals, and it will be designed to maximize the productivity of your assets so you can live your best life possible and leave the legacy you want to leave to the loved ones and organizations you care about. Relax and Enjoy Peace of Mind After the discovery and values-based planning process is complete, our team of advisors will come alongside you to help you navigate the changing face of retirement. From the savings and accumulation phase, to the distribution and lifestyle phase, to the health care needs and legacy phase, we will monitor your plan to keep up with your changing needs. How The Process Works Get Started Helpful retirement tips and articles. Long-Term Tax Planning: Proven Methods to Minimize Your Lifetime Tax Liability This marks the final week of our tax planning series, where we'll bring together the key concepts covered over the past few weeks. For... The Mega Backdoor Roth: A Powerful Retirement Strategy The Mega Backdoor Roth has become an increasingly popular strategy for individuals looking to supercharge their retirement savings,... IRA vs. Roth IRA: Pre-Tax vs. Post-Tax Contributions and Conversions This is week five of our 7-week series. If you wish to read our previous articles, you can chose them from the list below: Tax Planning:... View More More services from Monotelo Small Business Tax Services We will help you minimize your short-term and lifetime tax liability to free up the cashflow needed to help you grow your business and build for your future. Learn more Year-End T ax Filing Services We will help you minimize your taxable income by capturing the deductions and credits available to maximize your refund. Learn more

Tax Efficient Retirement Planning Schedule Your Retirement Planning Call

Audit triggers to be aware of on your 2018 tax return. 1 2 How likely are you to be selected for an audit? In 2017, the IRS audited just 0.60% of individual tax returns. Most of these returns were filed by mail as opposed to electronically, thus lowering the risk for a typical return to be reviewed for an audit. With that said, there are specific factors that increase the likelihood that your tax return falls into the small percent that receives additional attention from the IRS. One factor that the IRS looks at when deciding who to audit is income. As your income increases so does the chance that the IRS will select your return for further examination. You are also at greater risk of an audit if you operate a small business and report your income on Schedule C. In 2017 taxpayers who filed a Schedule C were twice as likely to be audited than those who did not. We have identified 10 factors that can lead to unwanted attention from the IRS on your 2018 tax return. Some of these red flags can be avoided by filing a complete and accurate return, while others simply require proper record keeping to quickly shutdown any IRS inquiries. 1. Failing to report all taxable income. The IRS receives a copy of all of your W2's and 1099's each year. One of the quickest ways to get their attention is to fail to report some of this income. 2. Deducting "hobby" losses. The IRS is wary of taxpayers who take up a hobby and then report it as a business to deduct their expenses. If your business shows losses multiple years in a row the IRS will begin to question if you are actually operating a business or merely deducting your hobby expenses. 3. Large charitable donations. The IRS knows how much the average taxpayer with your income gives to charity. If you make large charitable donations every year it is important to keep records of those donations. 4. Claiming rental property losses. It is not uncommon for a rental property to show a loss on your tax return. In order to deduct these losses on your return you need to "actively participate" in the rental activity. This is not a difficult threshold to meet, it simply requires that you are involved in making management decisions for the property. But if you show large losses, or if you have significant income from other sources the IRS may question if you are actively involved in the rental property. Keeping records of any meetings for, or trips to, the property can help demonstrate your participation. 5. Taking an Alimony Deduction. Alimony payments can be a significant financial burden, so you want to make sure you are able to offset that cost by deducting your payments from your taxable income. Large deductions for alimony payments can catch the IRS' attention, particularly when the payer claims a deduction but the recipient does not report the income. Before taking a deduction for alimony, be sure that your divorce agreement clearly identifies the payments as alimony or spousal maintenance. Child support payments are not deductible. 6. Failing to report your Health Premium Credit. If your health insurance is provided through the marketplace, you may be receiving subsidies from the government to lower your monthly premium payments. If this is the case you are required to reconcile those subsidies at the end of the year on your tax return by reporting the amounts listed on your form 1095-A. If you do not report the credits received the IRS will reject your return and request that you correct the omission. 7. Taking an early withdrawal from an IRA or 401(k). When you take a withdrawal from an IRA or 401(k) before age 59 1/2 you typically pay a 10% penalty for taking those funds early. There are a number of exceptions that allow you to avoid paying that penalty, such as when using the funds for medical or education expenses. A large number of taxpayers incorrectly claim one of these exceptions when they do not actually qualify. As a result of this taxpayers who claim one of these exceptions on their returns face extra scrutiny from the IRS. If you claim one of these exceptions be sure to keep documentation showing that the funds were used for a qualified purpose. 8. Claiming large gambling losses. If you win the lottery or have a good day at the casino you are required to report your winnings on your tax return. The IRS allows you to offset some of the tax liability of that income by deducting your gambling losses, up to the amount of your winnings. If those losses are too high the IRS may challenge the amount you claim on your return. To prevent the loss of your deduction be sure to get a statement from the casino showing your total losses or keep track of your lottery ticket purchases. 9. Deducting business meals or travel. If you operate a small business and file a Schedule C then the IRS will pay special attention to your deductions for business meals or travel. If these expenses seem large relative to your industry or revenue, the IRS could mark your return for an audit. The key to protecting your deductions is to properly document the business purpose of each meeting or trip, and keep receipts for any expenses over $75. 10. Claiming 100% business use of a vehicle. If you deduct the full purchase price of your vehicle as a business expense and you do not have a second vehicle available for personal use you are putting yourself at extra risk for an audit. To secure your deduction you should keep accurate mileage logs to demonstrate the business use of your vehicle. Summary The chances of an IRS audit are small, but various factors can increase the likelihood that your return is selected for review. While you can eliminate some of these factors by filing a complete and accurate return, you can never be sure that your return will not be audited. Understanding the necessary record keeping requirements can make a large difference in the outcome of an audit should you face one. Read more articles WHAT TRIGGERS THE IRS 10 Red Flags that Could Signal an Audit Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.