Tax Deductions that are Immediate Alerts for an Auditor
People avail of as many tax deductions as they can. This is largely because of their desire to rid themselves of the IRS or save as much money on taxes. Unfortunately, there are some tax deductions that are usually abused or that are too easy to abuse that the Audit section of the IRS notices these if anyone claims for them. Although these deductions are given to help taxpayers save some amount, others claim for very huge amounts that the IRS audit section will be prompted to make an investigation. Everyone is aware that IRS problems come after an audit.
One of the commonly misunderstood deductions is the home office. People think that they can claim a deduction equivalent to the entire value of the house if they do business there. They don’t realize that certain rules are outlined to orient taxpayers of the extent of their rights. Understand that IRS auditors are experienced in seeing inconsistencies and errors on tax returns. In fact, they have computers that calculate the accuracy of tax returns and even the probability on certain criteria which will aid them in the decision to audit one tax return over another. If you have simply deducted the entire value of your house because you have a home office, then you are up for some IRS issues.
Business owners often make mistakes on deductions concerning business advertisements on their respective vehicles. They believe that they can automatically deduct all their auto expenses from their taxes. Unfortunately, this isn’t the case. Normally, they can only avail of deductions related to the cost of the paint or the other advertising paraphernalia used on the vehicle. Based on the car’s business use, business owners can also claim for a certain percentage on the vehicle’s auto expenses. That is computed by dividing the business mileage you tracked (it’s a good idea to have an actual mileage log so that you can show auditors your excellent record-keeping skills in case you do get audited) by the total mileage. Hypothetically, if you drove your vehicle 10,000 miles in the course of a year, and had 2,000 of those miles counted towards business, then you would be able to deduct 20% of your auto expenses. If you are going to do this, then you should definitely keep very accurate mileage records, or else you may have serious IRS problems in the case of an audit.
Deductions regarding body parts and pets also commonly appear on people’s tax returns. Surprisingly, people do attempt to claim for deductions of body parts donated to science. Sadly though, if these donations are for non-profit groups and not 100% of your ownership rights and interests are donated, these are not valid claims for deductions. The IRS doesn’t consider donating a body part alone as giving up 100% of your ownership rights or interest since it is only a ‘part’ of your body. Hence, anyone who claim for deductions on body parts and pets are sure candidates of an IRS audit.
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