While best practice dictates that everything on a tax return is substantiated and documented, the onus is on the taxpayer to keep detailed records. Here are some common and lucrative tax deductions that are not allowed to be taken unless the adequate documentation exists before the filing of the tax return. Some of the most common ones are:

Charitable Deductions – Requirements for Charitable Donations increased substantially a few years ago. Without the required documentation (cancelled check, receipt or acknowledgement from the charity), charitable donations are not allowed. The IRS has stated recently that they see charitable deductions as a significant area of abuse; as such audits will be up. To ensure the deductibility of your generous donation, please make sure you retain the required information. If the individual donation is under $250 a cancelled check will suffice. If the donation is in excess of $250 you must retain a letter from the charitable organization. Itemized receipts are required for all donations of goods. Remember, there is no “just take the standard amount”. No documentation, no deduction – sorry.

Mileage Logs - Do you claim a deduction for miles for any reason? Business, Charity, Medical or Car Allowance? If you do, it is imperative that you keep mileage logs. A mileage log can be kept in almost any format, but it has to include details such as where you traveled (to and from), miles driven, purpose of trip and date. If claiming for a business reason, you also need to know the total number of miles driven per year for any purpose. Additional information is required if claiming actual expenses. The log doesn’t have to be fancy and a calendar will do, but consistency is key. There are many great (and free) apps available for smart phones and tablets. No Mileage Log No Deduction - Period!

For Clients with Dependent Children: For the last couple of years, the newsletter has had information about the growing requirements for Due Diligence on many items in the tax return, most of which pertain to claiming children. Each year, the IRS increases the amount of things that they require tax preparers to inquire about and document to meet this ever-growing obligation.. Unfortunately, this is a result of abuse in the system that often stems from self-prepared returns. But nonetheless, deserving taxpayers have become required to prove that they are entitled and tax preparers have significant penalties for failure to verify the validity of the info. In fact, we can be fined $520 for each credit, or allowance – which creates a potential liability of several thousand dollars on every tax return that has these provisions. Not only that, but taxpayers who knowingly take advantage of deductions/credits that they are not rightly entitled to can be subject to significant monetary and potentially criminal penalties. And the truth is, the IRS is out there looking for these situations. While we work very hard to ensure proper application of tax law for all of our clients, we are still required to ensure compliance. Therefore, please note additional paperwork is necessary for all of the situations below:

Dependency Exemption
Child Tax Credit
Dependent Tax Credit
Educational Credits
Earned Income Credit
Head of Household

For all of these situations, please provide documents:

Residency of Dependent: e.g., school records, medical records, daycare receipts, etc.
Household Support: Documentation that you supported the household; e.g., mortgage statement, rent receipts, utility bills, household expenses, etc. If someone else pays more in support to the household than you as a taxpayer, we need to know that to determine what you are eligible to claim.
Earned Income Credit – Please make sure you are including all income from all sources, including non-taxable support.
Education Credit – 1098T from school, plus detailed billing statement from Bursars office for 2019, reflecting all payments made. If you have a 529 Plan, please include the 1099Q issued by the plan sponsor.
Non-Custodial Parents – To claim an exemption for a child that does not live with you, you must have form 8832 signed by the custodial parent releasing the exemption. This form must be signed before you submit your tax return and must be included with the e-file to the IRS.

**Did you have a new baby this year? Congratulations!! Please provide us with a copy of your new addition's social security card and birth certificate**

Did you know… IRS Circular 230 requires us to practice Due Diligence – requiring us to make reasonable inquiries regarding income, expenses, record keeping, etc. While it may seem that we are probing, our intent is to make sure we have covered all bases and to prepare a complete and thorough “examination”. It is the job that you hire us for and a responsibility we take very seriously. For information about our disclosure responsibilities, please see our Privacy Policy under the "About" tab.

The Devil Is In The Details - Make sure you get the deductions you are legally entitled to, by following these documentation guidelines.