Question

1. Ralph and Diane Hearst have been notified that they are being audited. What should they do to prepare for the audit?

2. Create a list of the deductions that you are eligible for this year, those that might apply in your financial planning timeline 5 years from now, and those that might apply 10 years from now. How can awareness of your eligibility for deductions impact your long-term financial planning?

Answer 1

1.It's has been the notification of an external audit.And it's the management's responsibilities to provide it with a finanncial statement prepared as per the accounting standards.Management should provide a acknowledgment agreement of its responsibilities.Convey their ongoing finnacial reporting framework to the auditor.Maintain a strong internal control.And as and when required provide the Written Representation on certain matters on which the auditor want confirmation, or to support other audit evidence.Management will provide the information regarding the Related parties, so that the auditor can respond to the risks of material misstatement.

2. Standard deduction - Is a no questions asked reduction in your Adjusted gross income.Amount varies on the filing status.

​​​​​Itemize deduction - It cut your taxable income, by deducting the amount to qualify for.

•Home office deduction.

•Self employment expenses dedication.

•Health saving account contribution deduction.

•Charitable donation deductions.

•Medical expenses deduction.

•Gambiling loss deduction.

Awareness of your eligibility for deduction impact for long term financial planning by lowering the taxable income and reducing the tax liability, and by saving in tax bill, money can be utilized in some other investments plan and revenue can be generated.

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