Tax Audits & How
to Avoid Them - Raising
the Red Flag at the IRS
the IRS is happy when you can take a deduction for which you're
really eligible. However, taxpayers who stretch the truth in order
to qualify for a questionable tax credit may want to avoid setting
off a process in which their entire tax return comes into question.
result in paying extra tax, penalties or interest or a
complete audit of your present or prior years' returns if the
IRS suspects a full blown case of tax
tip from professional accountants and IRS tax examiners who offer
valuable advice on tax deductions that usually set the red flags
Your Money: Avoiding Tax Audits
This is the
most common deduction and, since so many tax filers tend to misuse
it, it's also a major reason for "bells going off" at
used cars or clothes to a charitable organization, just remember
that the value of your donation is what it's worth when you donate
it. A used designer dress or suit given to the Salvation Army,
for example, is no longer worth the $800 you paid for it, nor
is an old jalopy worth the same as when you bought it at the car
dealership - 10 years ago.
say IRS auditors, be clear and reasonable when claiming charitable
deductions by costing and itemizing each deduction.
As a growing number of Americans opt for business startups from their home,
many of the newly self-employed find the home office deduction
very enticing. However, it also presents one of the IRS' favorite
targets of questioning. So, if you're absolutely sure that the
spare room you've scoped-out has been used solely and "exclusively"
for business, and can meet the various (and some say confusing)
criteria for claiming the home office deduction, by all means go for it. Otherwise, say the experts, avoid the headache.
Earned income credit
Another frequently taken deduction, the EIC was designed to provide tax breaks for
Most people who file the earned income credit apply as guardians of children who live with them. However, most who read the fine print soon discover that
they must prove they are related to the child, (normally, with a birth certificate) and that they have lived with them under the same roof for more than six months a year.
Unmarried tax filers, in particular, often mistakenly file for the children of a boyfriend or girlfriend that they have supported financially during the year. However, this scenario will also be disallowed unless the children have been first legally adopted.
Avoid simple mistakes
Finally, be sure to report all your income, attach all related W-2 forms, re-check your figures to make sure there are no mathematical errors, and submit a "neat" return so your form can be easily read. If not you may - at the very least - receive a phone call or letter from a tax examiner asking you to further explain your return.
Seems obvious, but filing a correct tax return goes a long way toward avoiding special attention from the IRS.