For those day trading for a living, receiving a notice from the Internal Revenue Service regarding an audit can be a significant inconvenience. Despite many people who feel they can adequately represent themselves, Los Angeles Times columnist Karen Klein says it's a wise idea to hire a professional accountant to handle representation at the audit.
Day traders with professional representation should be able to quickly determine what kind of information the IRS is looking for, saving effort from all parties.
In addition, that also means it's not necessary for the trader themselves to be present during the audit, saving them time that could be better used for other purposes. That can also avoid the potential for a day trader to say something inadvertently, which could open them up to even greater tax liability.
If further examination shows an error was made in determining day trading taxes, Klein says experts feel it may simply be best to pay up without a fight.
"If an auditor raises an issue in which you clearly are wrong, concede the point. Owning up builds credibility and shows the agent that you are making a good-faith effort to comply with the law," Larry M. Elkin, president of Palisades Hudson Financial Group in New York, told Klein.
That good will, Elkin said, could translate over to other aspects of the audit. By showing good faith regarding the tax accounting mistake that may have occurred, auditors may be more likely give traders "the benefit of the doubt" in other situations.
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