Money Rehab with Nicole Lapin - How To Not Get Audited

Episode Date: April 5, 2023

T-2 weeks-ish until Tax Day. How we celebrating? By freaking out over the idea of getting audited? Not anymore! Nicole shares her top tips for a squeaky clean tax return.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a it's time for some money rehab. Hmm, taxes. I'm not going to do a big old preamble, so let's get right into it and talk about all things IRS and taxes today. First up, let's talk due dates. This year, the deadline to is April 18th, and that's only if you owe taxes. If you know for sure that you're getting a refund, the government is happy to just keep your money. Now, that is your money. You need to get that money. But if you're getting a refund, you do have up to three years to claim it.

After three years, though, the government will just keep your refund forever and ever, and you can't get it back. But if you are getting a refund and you don't necessarily need the money ASAP and life is really complicated and busy right now, this is something you can just take off your plate for a while. Because let's be real, the IRS is not in a rush with anything. They can't be. They've been hobbled by cuts to their funding. I mean, between 2010 and 2019, adjusting for inflation, they lost 20%

of their funding, which sounds great, right? Nobody likes paying taxes. But our taxes fund the government. They pay for national parks. They pay for food safety inspections, hurricane detection, and upkeep of federal dams. So not funding the agency that makes sure every other part of the government has enough money to function makes the entire system just less efficient. The IRS started this season with 10 million unprocessed tax returns from prior years.

That's like if you go to class without doing your homework and then the teacher assigns you even more homework. It makes doing the day's work all that much more difficult That's like if you go to class without doing your homework and then the teacher assigns you even more homework. It makes doing the day's work all that much more difficult because you don't have to do the work from the night before first. It also means that the IRS has way less time to answer the phones or process your returns because they're just struggling to play catch up. They've also reached a point where they're essentially unable to

audit the most complicated types of returns. The IRS, of course, doesn't just collect taxes from you and me and your mom. They also collect taxes from the likes of ExxonMobil and Elon Musk, who have far more complicated tax returns than your mom, I promise. Back in 2010, Americans earning over $5 million were audited at a rate of 16%. These days, the audit rate for Americans at that same income level is down to 2%. If you earn less than a million bucks, your chances of being audited have also decreased, although it was really never that high. The audit rate is currently 3.8 returns out of every thousand. If you do get audited, unfortunately, it will take a while because there is that backlog. But nobody wants to be audited. So here are some very simple tips for avoiding an audit.

First, keep those receipts and don't look like you're guesstimating. If you claim you spent $500 exactly on office supplies, the government knows you are just making that up. Round-numbered deductions can trigger an audit for just looking fake. Number two, excessive deductions also look sus. Sure, maybe you really did donate $50,000 of the $70,000 you made this year. But even if you did, you can see why that looks a little unusual, right? Number three, and this is where it's easy to get tripped up. Watch out for missing income and missing forms. If you worked a job for three months and quit. No call, no show. You still need to get a W-2 form from that job, even if it's awkward, because they reported paying you to the federal government,

so you need to report that income as well. Or your numbers aren't going to match up, and you'll trigger an audit. Now, all of this confusion and mess could be avoided if we just structured our tax system differently. And we would if I were in charge of the world. Almost every other functioning government on earth just sends their citizens a bill and said citizen pays said bill and everyone just moves on with their lives. Obviously, we've decided to do things the hard way here. And that system works great if you're ExxonMobil or Elon Musk, and you can afford to have a herd of tax attorneys and CPAs work the system. But if you just have your salary, a 401k, and two kids,

the system is probably way more complicated than it needs to be. Even politicians know this. And as part of $80 billion the IRS was recently given to try and hire more workers to deal with the backlog, they also want to set up an online program to allow taxpayers to file directly with the IRS. If you have simple returns, instead of paying money to a tax service or a software company, you could really just do it yourself. Because why do you have to pay money to a company to find out how much you owe the government or to get your refund? The answer is lobbyists. No, really. Companies like H&R Block and TurboTax have spent decades

and millions of dollars making sure the tax process is so complicated that you are forced to pay for their services, which is pretty uncool of them, if you ask me. Other than that, a few things you should also know this year. If you live in an area that was under a national disaster declaration, this year you might be eligible for an extension. And this is a true extension on both filing and paying. But generally, this year, refunds might be smaller because of the pandemic tax breaks that have ended. There is some good news, though. As long as you don't live in Georgia, Massachusetts, South Carolina, or Virginia, you probably don't owe income taxes on any sort of one-time inflation relief payment that you may have received from your state. And if student loans ever get forgiven, it looks like you won't have to pay income taxes

on those either. And finally, for all my teachers out there in the trenches, tax deductions for teachers from kindergarten through high school have gone up to 300 bucks for unreimbursed expenses. So save those receipts next time you get hand sanitizer, dry erase markers or whatever for the classroom. For today's tip, you can take straight to the bank. In 2023, the maximum amount you could save for retirement has increased. For workplace accounts, it's gone from $20,500 to $22,500. And for IRAs, it's gone up 500 bucks to $6,500. So start budgeting now to try and take advantage of those increases. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes.

Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.