It should come as NO surprise to long time Financial Samurai readers that the IRS admitted to targeting conservative groups since Obama became President. The government already discriminates against those who make over a certain amount by charging higher taxes even though they already pay for the majority of all taxes. Meanwhile, the deductions and credits you get for things such as education and children get eliminated if you make over an absurdly low amount. Conducting body cavity searches to shake more tax dollars out of Republicans is business as usual.
Make no mistake that if a Republican was President, liberal groups would also be targeted by the IRS. Everybody naturally discriminates against everybody. Sometimes the discrimination is overt and evil, other times the discrimination is covertly done out of convenience until discovered as is the case with the IRS.
The bottom line is that people have a strong proclivity to take care of their own, no matter what. In this article I’d like to discuss ways in which people can significantly reduce their chances of getting audited by the most powerful organization in America.
THREE EFFECTIVE STRATEGIES TO AVOID AN IRS AUDIT
1) Stay neutral or aligned with those in power. If the President is a Democrat, don’t be so foolish to highlight you are a Republican. Either indicate no party affiliation or also claim you are a Democrat. America is split 50/50 between Republicans and Democrats under the popular vote and neither party likes each other at all. You need to pledge your allegiance to the winning side otherwise you will not only see stunted growth in your political career, you will also be targeted by the IRS and maybe even the FBI. Don’t underestimate the possibility of the FBI keeping more tabs on Republicans under a Democratic President and vice versa.
If you’ve studied Iranian history or watched the movie Argo, you know the Ayatollah Khomeini went after all of The Shah’s people with great vengeance. The time for fear and caution is during any regime change. In order to survive and maybe thrive, you must understand your leader’s beliefs and adopt them as your own. Convert, hide, or be oppressed.
2) Donate to charities that matter to those in power. Donating money is a great way to not only help others but to lower your taxable income as well. Donate too much, and alarm bells will sound. The key is to donate to the right charities if you have a propensity to donate much more than 10% of your overall income. In 2012, President Obama’s largest contribution was a $103,871 donation to Fisher House Foundation, which provides humanitarian services to military members, veterans and their families. Consider following suit and donating to the same cause, or similar causes in your area. You should also donate to causes dear to the US Treasury Secretary’s heart as well to charities important to the head of the IRS.
The only way I could have partied with Marissa Mayer from Yahoo at her penthouse was if I donated $500 to Ed Lee’s campaign, the current Mayor of San Francisco. $500 is actually the maximum contribution amount per event to keep money from being too much of an influence on politics interesting enough. The next time I get a debatable parking ticket, a ridiculous property tax assessment, or a noisy manhole cover near my house I’m calling the Mayor’s office!
3) Donate directly to the President. All political donations are carefully monitored so the respective party can seek more donations in the future. We’ve all gotten the endless letters in the mail asking for more money as soon as we’ve donated even $100 to a cause. The more you can donate directly to the President’s campaign the better. Let’s say you go to one of those $33,400 per plate dinner fund raisers for Obama and are a registered Democrat. There is no way in hell you will ever be audited because the person will be so infuriated he’ll never donate again!
Those who donate $32,400 a dinner generally donate even more in many ways. And those who host $32,400 per plate dinners at their houses are even that much more protected. They might even be offered Ambassadorships in various parts of the world. Even if you can only donate $500 to the President, you will likely be put on the secret “do not audit because we need his/her money” list.
STOP LIVING IN FEAR BY GETTING ON THE RIGHT SIDE
The more money you make, the more likely the IRS will target you. Take a look at the audit rate by income in the chart below.
The chance of an audit is a clear reason why so many people who have a lot of money stay under the radar. I’ve personally received three audit letters by the IRS in 13 years which is a 23% audit rate and I didn’t come close to making $5,000,000 to $10,000,000. All audits were resolved due to mistakes on my part e.g. forgetting to input the cost basis for my stock sales, double counting a mortgage interest deduction by mistake, and NY State fishing for more money even though I didn’t even work there. Mistakes are definitely one reason not to do your own taxes. But the benefits outweigh the negatives in the long run.
Although my three suggestions may sound whimsical, the point is to simply align your interests with whoever is in charge. If Madam President loves poodles, then you should absolutely donate money to the Poodle Society Of America. If Mr. President is an ardent supporter of Universal Healthcare, then write an article about the wonderful benefits of insuring the millions of uninsured if you have a platform.
I’m always going to give someone in a crowded room the time of day if she played tennis in college, blogs, and offers me a strawberry cupcake. If another fella wants to talk but loves big government, has never experienced the agony of defeat in sports, and smells worse than a crusty sock, then I’ll probably move on. It’s all about creating a connection, especially if you don’t have money to buy your way into power.
The government will eventually come for you. Do not be naive to think that just because you earn under $100,000 you’re safe. They’ll figure out ways to extend the official retirement age or tax your retirement savings more than expected. What you need to do is build a track record of giving to your leaders on both sides like big corporations do. When the day comes where they are busting down doors looking for enemies of the state, they’ll just walk on by and leave you and your family alone.
COMMON RED FLAGS THAT INCREASE YOUR CHANCE OF AN AUDIT
* Claiming a home office.
* Have a side business that consistently makes little to no money.
* Donating more than 10% of your gross income to charity.
* Making an error on your taxes and getting noticed by the IRS puts you on the watch list for future errors.
* Operating a predominantly cash business.
* Going from making lots of money to making a little money.
* Suddenly making a lot of money from an average amount of money.
Tax Savings Recommendation
Start A Business: A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C). Every business person can start a Self-Employed 401k where you can contribute up to $54,000 ($18,000 from you and ~20% of operating profits). All your business-related expenses are tax deductible as well. Simply launch your own website like this one in under 30 minutes to legitimize your business. Here’s my step-by-step guide to starting your own website.
Updated for 2017 and beyond. Income taxes are set to come down under President Trump. As a result, those who contributed to their Roth IRA or Roth 401k and planned on retiring in 2017 – 2021 had wrong tax expectations. Photo: Peterhof Palace, St. Petersburg, Russia.