ROL Financial Blog

It’s tax season and everyone is worried about getting audited by the IRS but the good news is that audits happens pretty rarely; however, it does happen to every once in a while to some people. Statistically, approximately 2% of people get audited and although this is true, it’s important to know what can increase as well as decrease your chances of being audited by the dreadful IRS.

Let’s take a look at a few things that you can do to avoid being audited by the IRS.

First and foremost, make certain that all of your information on the paper forms or the online forms is completely accurate. The slightest misspelling of your name could cause an audit, although it isn’t likely without other probing factors. You should make certain that you input the information on the IRS form from your W-2 or 1099’s is absolutely correct from the name of the company and their tax-id to the amount made and taxes taken out. If you mess up on your return, the IRS will notice this and be tempted to take a closer look at the rest of your tax return to see if any more mistakes were made. This could cause you to pay more money in, or possibly get more back, depending on the situation.

Another thing is to ensure that you claim the correct number of exemptions and dependents. Be sure you claim individuals that are qualified dependents. You can check the requirements on the IRS website or with your local tax accountant or firm. You can really only claim people that lived with you majority of the year and that you helped support. By adding dependents this year that don’t belong, removing them next year, then adding them again, could cause an audit by the IRS.

You also need to make sure that you file as the right status – single, married, etc. Many may think they shouldn’t claim they are married if they got married within the last week of the year; however, you claim your status as of how you were on December 31. Therefore, if you were married on December 30, you need to file married filing separately or married filing jointly, depending on how you and your spouse plan on filing – separate or together.

You should also be sure to report all of your earned income whether it is on a 1099 or W-2. You must remember that the IRS receives all the same forms that you do so if you don’t report a W-2 on your tax return and you made more than $600 from that employer, you have strengthened your chance of being audited. The IRS received that W-2 as well and knows that you didn’t report it on your tax return.

Don’t go completely overboard with itemized deductions – this is whether you run a home office, small business, or not. You can claim several deductions for having a home office as well as deductions for a small business. Some of these itemized deductions include gas, meals, supplies, etc. The most important thing regarding this area is to make certain that you have solid proof to back up these expenses that you incurred throughout the year for which you are claiming as deductions.

Lastly, double-check your forms before you submit them to the IRS. You may very well be able to catch your mistakes before you submit them.

The question that seems to race through the minds of most investors is whether or not equity indexed annuities are a wise investment. The situation is so pressing that the National Association of Securities Dealers once questioned the manner in which equity indexed annuities were being marketed and sold and the lack of a body to regulate the manner in which the industry was being handled. However, this is not a question that can be answered lightly without taking the time to understand the basics of the equity Index.

First off, the contract states that you have to invest your money in an insurance company over a period of ten years, it grows without getting taxed. In return, the company is supposed to give you returns based on a certain stock market with an exclusion of the dividends. On top of this, they also promise to deliver minimal returns rates that amount to three percent, which isn’t exactly the best annuity rates but at least its above zero. and what is more, in the event that the market goes down, your investment is safeguarded as it is not affected in any manner and for this reason, majority of investors find it ideal. The only setback is the fact that in the event you withdraw from the investment before the ten years are up, then you lose everything.

Having understood the provisions contained in the Equity Indexed Annuities, let’s revisit the initial question, are they a wise investment? If it were not for the fact that they are a complex investment compared to traditional and fixed annuities, then the answer would be a simple yes and yet, it is not. This is mainly due to the fact that Equity Indexed Annuities contain many penalties, costs and multi-year surrender charges which are hidden and as such, make it impossible for the investor to make sound judgments. This is especially true due to the fact that they promise guaranteed security to the investors.

As stated earlier, the National Association of Securities Dealers have no hand in controlling the marketing of these annuities and as such, by law, there is no provision of prospectus that discloses the terms, conditions and risks involved in equity indexes and to top it all, they can be sold by an insurance agent who does not hold a securities license. For this reason, investors should not be quick to bank on the same without carrying out proper investigations to establish and totally understand the terms used in the provision of the annuity.

Some of the things that ought to be considered include the features that govern the annuity, any tax requirements that might creep up at some point and how they will affect you, return rates expected and how solid they are, liquidity specifications, the duration through which you have to wait before taking out your investment to avoid penalties and all the expenses associated with the annuity with no hidden costs whatsoever. Once you are able to do this, then you will be better placed to decide if it is a scam investment or not. In addition to this, you will be able to avoid falling into the traps of unscrupulous insurance agents.