Undergoing a tax review is one of the most frightening and harrowing experiences any adult can endure. A tax review probes deep into financial and personal matters, and if errors and omissions are discovered in tax returns, the result can be imprisonment or a fine, possibly both. More frightening still, the aftermath of tax evasion can be just as harsh for innocent mistakes as serious attempts to defraud the authorities.
So, what can an honest citizen do to prevent a tax review? For starters:
1. Take your time completing your accounts and preparing your tax return. Rushing to meet an imminent submission deadline is a major cause of mistakes and omissions, and subsequent harsh punishment.
2. Complete your accounts and prepare your tax return when you’re wide-awake and free from distractions. Children playing noisily in the background, customers demanding your attention, falling asleep at your desk, all can lead to errors and ambiguities and a subsequent visit from the taxman.
3. When you think your accounts and tax returns are problem free, put all your paperwork to one side, preferably at least four weeks before the final date for submitting tax returns. A week later, study your figures; check your calculations, correct errors you didn’t spot earlier, enter details you overlooked previously. Check again two weeks before tax submission deadline, and if all looks good, submit your return right away.
4. Get a certificate of posting for submissions by post, make a screenshot of returns processed online. Then when your return goes missing in transit, you can prove you submitted on time, and avoid a potential tax review.
5. Submit your tax returns on time, every time. Submitting late might suggest you rushed your submission, and possibly made mistakes.
6. If you don’t use an accountant, consider getting one, preferably with expertise in your area of business and on good terms with the tax authorities. Search online for someone with a good reputation for filing submissions on time and without making mistakes, as well as for signs an accountant may have been jailed or expelled from a professional association for fraud or misconduct. Key the name of a potential accountant into the search box at google.com, then study the first three or four pages of search returns where most derogatory entries are likely to be found.
7. If you submit something unusual in your tax returns, such as a major drop in income or an unusually high expense, explain it in a note accompanying your return or in the appropriate location on your submission form. The more you tell the taxman, the less likely a review will be opened to determine reasons for gaps and irregularities in your tax return.
8. If paper filing, prepare your submission on a photocopy of the official tax return form before preparing your final return. Alternatively, use pencil on the original form so errors and ambiguities can be edited later. Lots of deletions and amendments to an original form suggest a disorganized individual, and potentially more mistakes for the taxman to find.
Hopefully, you’re electronically filing your return. If so, then review the return before you file and print a copy of the confirmation as proof you filed your return.
9. Add tips and cash payments, also barter transactions to your declared earnings, so the taxman doesn’t feel obliged to ask about income you may have overlooked or considered tax-free. If doing barter, exchange invoices so you have an audit trail.
For the record, almost every form of income should be declared on your tax return, except income from sales of personal goods.
All this time and effort spent preparing your tax return shows you are an honest and law-abiding citizen, someone who does not deserve special attention from the authorities.