Today TaxMama helps Dave in Rochester, IL who is freaked about an audit “My mother died in 2003.
She left about $35,000 to me to help send my 3 kids to college. I set up 3 custodial funds with evenly divided funds. My 2003 tax return is now being audited by the IRS. (Like I bought a new boat or something.)
I was under the impression that since this money is under their SS numbers and they may take it at age 18, that it should not be taxable as my income. Help me get the IRS off my back!
Actually, Dave, it looks scarier than it is. You should not have too much of a problem – if you get prepared properly for your audit.
I’ll bet you have paperwork that shows you inherited the money, or that it came from your mother’s account. IRS is looking you over because that money was deposited into your bank account before you set up the childrens’ accounts.
But don’t worry. Regardless of whose name you put the money under, none of it is taxable to you. Inheritances, when the estate is under the $1.5 million threshold, are not subject to any taxes whatsoever.
Here’s what IRS does in an audit. They add up all the deposits to all your bank accounts. Then they compare the income you reported on your tax return.
If the total deposits are higher (and they are likely to be in your case), IRS will try to say that you have unreported income.
It’s YOUR job to prove to them that the difference consists of inheritances, loans, transfers from other accounts, or…whatever.
Chapter 13 of Small Business Taxes Made Easy details exactly what to look for in your bank statements and your records to help you prove to IRS that you have no unreported income. The information in that chapter is what I use to teach tax professionals to get their clients’ records ready for audit – but it’s in plain English, so you’ll have no trouble following it.
You’ll see, it’s a cinch to win your case, when you know how – and IRS audits are TaxMama’s specialty!
And remember, you’ll find answers to lots of or audit and estate tax issues and other tax information, free. Where? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- Small Business Taxes Made Easy :: Read Chapter 13 to learn how to prepare your records for audit – even if you don’t have a business