Top Ten IRS Red Flags

The overall IRS audit rate is around 1% for individuals. The following 10 items can kick up that percentage and bring you some IRS attention:

1. Reporting income over $200,000.
2. A schedule C with a net loss.
3. Office in the home deduction with business percentage over 20%
4. Claiming 100% business use of a car.
5. Rental real estate loss
6. Large fluctuation of income from prior year
7. Foreign bank account
8. Income on return doesn't match 1099
9. Meals and entertainment deductions
10. Larger itemized deductions than average for your income level

Most Important Job of an Executor

The most important job of an executor is to find all of the relevant documents of the deceased which can be very difficult depending on the size of the estate. To help your future executor and heirs, you may want to consider writing a letter now detailing your post death instructions, and describing the location of all of your important papers. The records your executor should find as quickly as possible after death include the following: cash on hand, bank account statements, auto titles, brokerage statements, retirement plan statements, insurance policies, list of user Id's and passwords for access to your financial accounts, safe deposit box inventory of items, prior gift tax returns, last three years of Federal and state income tax returns, latest credit card statements, any jewelry or art appraisals, mortgages and deeds to real property, stock or bond certificates registered to deceased, and any current shareholder, operating, or partnership agreements. I also recommend that all stock and bonds be held in street name instead of personally which means that a stock broker will keep up with the securities.

Premium on Bonds

If you pay a higher price for a bond than what it is worth at maturity because the bond pays a higher rate of interest than the current market, then you have the option of reducing your yearly interest income by the amortization of the premium or increasing your basis in the bond when it matures which reduces your capital gain or increases your capital loss. Some brokers provide a schedule of bond accretion or amortization to help you with this process and also calculate the adjusted bond basis in the schedule of realized gains and losses. Usually it is much easier and not really worth it to consider bond amortization and just leave the premium in your basis in the bond.