Tax mines: 1040 tax forms are the key

Tax mines: 1040 tax forms are the key Reporter Wang Shanyan/Los Angeles report It’s tax filing season again, Chinese accountants pointed out that the IRS has become more strict in tax inspections in recent years...

Tax mines: 1040 tax forms are the key Reporter Wang Shanyan/Los Angeles report It’s tax filing season again, and Chinese accountants pointed out that the IRS has become more strict in tax inspections in recent years, and the targets of tax inspections often hit several “landmines” by mistake. If you want to stay safe this year, you must avoid stepping on these "landmines." Chinese accountants pointed out that the landmines that easily trigger tax audits by the IRS were summarized by top mainstream tax lawyers. They found that the IRS not only uses computers to check tax forms and relevant information provided by third parties, but also uses the "Discriminant Index Function" formula to score each tax form. The higher the score, the higher the chance of being audited. But how to score, accountant Chen Boren said, the answer lies in the 1040 tax form filled out by the taxpayer. If the answer in the form is negative in multiple places, the chance of being audited is higher. This includes line 12 of the form asking self-employed taxpayers about business income or loss, line 13 about capital gain or loss, line 14 about remaining appreciation or loss, and line 17 about income from rental properties or copyrights. If the answer you fill in is a negative number, it is easy to get high scores. Line 21 is about "remaining income". If there is remaining income, it is recommended to attach a separate form to explain it clearly, otherwise it will easily trigger a tax audit. Chen Boren said that after filling in the itemized deductions or standard deductions in line 40 of the 1040 tax form, it is recommended to divide the amount by the adjusted income in line 38. If the result exceeds 40%, it will easily trigger a tax audit because it means that the taxpayer's expenditure ratio is too high. The IRS will question how taxpayers can survive with so much money spent. However, this project is not all about proportion, but also the size of the numbers. Assume that the number filled in line 38 is 500,000 yuan, and the number filled in line 40 is 200,000 yuan. Even if the proportion is 40%, the difference of 300,000 yuan in the middle means that life is fine. But if the former fills in 30,000 yuan and the latter fills in 12,000 yuan, the IRS will question how the taxpayer uses 18,000 yuan to live on. If line 40 contains loan interest, since the IRS stipulates that the interest cannot be deducted from income for loans exceeding 1 million yuan, so if the answer in this column is unreasonable, it is easy to get high scores. Generally, you cannot fill in interest exceeding 115,000 yuan. This is based on the mortgage interest rate of 11.5%. However, the current mortgage interest rate is less than 5%, which is equivalent to half of the former. Therefore, as long as the amount filled in this column exceeds 57,500 yuan, it will be easily subject to tax inspection. As for the adjusted income filled in lines 37 and 38, if the answer is a negative number, the probability of being audited is almost 100%. Accountant Li Xinzhong said that according to this set of formulas, taxpayers who are likely to get high scores, that is, are prone to tax audits, are taxpayers who apply for Earned Income Tax Credit, have foreign accounts, declare charitable donations that are too high compared to their income, declare a base price for selling a house that is too high to reduce net profit, and declare expenses that are too high when making itemized deductions.