If you're planning to work with a tax preparer, it's important to always be honest about your money moves. Business Insider has compiled seven examples you'll want to share next time tax season rolls around.
When it comes to making your money work for you, transparency is key. Just like it's important to disclose potentially embarrassing life events to your wealth adviser, it's equally, if not more, important to be honest with your tax preparer.
However, that's not always the case. In a 2011 IRS report, twice as many Americans (eight percent) believed a little fibbing on tax returns is "fine," compared to the same survey issued in 2010.
And although it's true that the IRS doesn't exactly go after "small potatoes" taxpayers for fibs (generally, you'd need at least $1 million in assets to interest them), even a few missing details could put your refund in jeopardy.
Here are seven confessions we recommend making:
"I made a nondeductible contribution to a traditional IRA."
"While nondeductible contributions have no impact on your tax liability in the year they are made, by not reporting these contributions on your return, it’s more difficult to claim these same amounts are not taxable when they’re later withdrawn from the IRA, usually many years later," says Tim Steffen, CPA and director of financial planning at Baird.
"I've earned income outside of my regular 9-to-5 job."
Whether it's a lawn-mowing service you keep on the side, or a freelance writing gig at your local newspaper, any additional income will need to be reported on your tax forms.
We know. It's a pain to gather all your 1099 forms and keep track of every dollar and cent that you've earned yourself, but it's a big red flag to potential auditors if you don't. At least 4 million people were audited in 2010 for underreporting their income, according to Minyanville.
The IRS uses document-matching programs that let agents cross-check income reported on tax returns against what is reported on forms like a W-2, 1099-INT, 1099-DIV, and 1099-B.