Red Flags The IRS Looks For
With the tax season upon us, Kiplinger recently shared a list of 14 Audit Red Flags to help you avoid a visit from the IRS.
We selected the most relevant for our clients here…
1. Mucho $$$: The odds of getting audited are pretty slim for the average tax payer, but your chances increase heavily with greater income. Those making more than $200,000 have about a one in thirty chance of getting audited. If you’re making over a million, the odds are one in nine. Don’t let this prevent you from working hard and making money, just keep in mind that the more income shown on your return, the bigger blip you create on the IRS radar.
2. Reporting ALL Taxable Income: If you happened to make some freelance money outside of your regular job, great! But you do have to file your 1099s or W-2s with your tax return. If you have one of these forms, that means the IRS has one too and they will notice if you try to score some extra cash!
3. Being Overly Generous: Make sure to properly document all of your charitable contributions. If your deductions are obviously large in comparison with your income this is a major red flag for the IRS.
4. Eating, Drinking, & Traveling: This is another one where you’ll want to have proper documentation. Those who are self-employed tend to over abuse the Meals, Travel, & Entertainment write-offs, and the IRS knows this. You’ll need to be able to prove that your meal was business related (people attending, what was discussed, the nature of the meeting, etc.). Bottom line: keep your receipts.
5. Being on the Small Side: Unfortunately the IRS keeps a close watch on small businesses since there are cash-intensive spots out there- car washes, bars, hair salons- that have a tendency to under-report all taxable income.
6. Riding Dirty: Claiming that your vehicle was used 100% for business purposes is pretty hard for the IRS to believe. You’ll want to keep detailed mileage logs and the like to avoid losing your deduction.
7. Working Hard or Hardly Working: If you qualify for a home office deduction you can deduct a percentage of your rent, taxes, utilities, and many, many other things related to home office work. It’s pretty awesome. The thing is, you have to exclusively use that space for work…and prove it. Some people will exaggerate the size and expenses for their home office, if they have one at all, and this is something the IRS is very aware of.
You can read up on the full list at: http://www.kiplinger.com/slideshow/taxes/T056-S001-irs-audit-red-flags-the-dirty-dozen-slide-show/index.html