This article looks at three deductions that are most likely to draw the attention of the IRS's auditors.
Getting audited by the IRS is something that most people would rather avoid. While some audits are fairly easy to deal with, such as one conducted through correspondence, a field audit can lead to a major upheaval in one's life. Furthermore, even the smallest of audits can lead to a dispute with the IRS, which could ultimately result in a much higher tax bill. While it is impossible to predict who will and won't be audited in a given year, there are certain red flags on a tax return that are more likely to attract the attention of the IRS. Below is a look at just a few of them.
As CBS News reports, self-employed individuals tend to get targeted for audits much more frequently than other tax filers. That's because the IRS tends to view self-employed people as more likely to either underreport their income or to exaggerate their deductions. Claiming a home office deduction is perfectly legitimate for self-employed people, but it is important that they not get carried away. If the deduction seems to suggest that too high a percentage of the home is a dedicated office, for example, then an audit may be triggered. Likewise, trying to claim too much use of one's vehicle for business expenses may also raise a red flag.
Claiming charitable donations on a tax return is common, but it is important to make sure that one keeps receipts and other documentation for any donations being made. Donations made by check, credit card, and even cash are generally easy to document with a receipt. However, as USA Today reports, the same cannot be said when a good is being donated to a charity and then claimed as a deduction. When claiming donated goods, it is important not to exceed the fair market value of those goods. That means that when donating used items, claiming the amount those items cost when they were new is going to look highly suspicious to the IRS.
Spouses claiming the same deduction twice
Spouses who decide to file their taxes separately need to be especially careful. While there is nothing wrong with filing separate tax returns, there is plenty of potential to accidentally claim a deduction twice in such cases. Spouses cannot each claim the full amount for the same deduction. While it is possible for each spouse to take a share of the same deduction or for just one spouse to take the full deduction, it's important to communicate about who will be claiming what.
A dispute with the IRS is not only a major inconvenience, it can lead to a much higher tax bill than one had counted on. However, it is important to remember that the IRS does make mistakes. Anybody who is being audited or who has a disagreement with the IRS should contact a tax attorney today. An attorney can represent clients and negotiate with the IRS on their behalf, thus helping them achieve an outcome that is more likely to be in their best interests.