This is one of the biggest questions we get when doing tax preparation year to year - "What are my chances of getting audited by the IRS?" The best help we can give you is to cover our bases when preparing your documents, and help guide our clients to make the best choices. Here are some income tax tips, as well as some resources to help you this season.
1. Use a CPA. A Certified Public Accountant is someone who has the training and education, as well as the professional associations to make sure your documents are prepared correctly. A CPA will be current on all the changes to tax law and policies and procedure.
2. Report all taxable income. You aren't the only one getting the your 1099s and W-2s from your employers - the IRS is getting those too. If you do not report income that was reported by a business - a red flag will go up - and an audit could take place. Report all your taxable income.
3. Giving to charity? Be careful about what you claim. Charitable deductions are a great write-off, but if it goes overboard - guess what? It's an audit red-flag on the part of the IRS. Especially if your charity donations are REALLY big in comparison to your income. Also - be sure your ducks are in a row with regard to paperwork surrounding charitable contributions. Keep your receipts & documents! And, you must get an appraisal for donations of valuable property or file Form 8283 for donations over $500. Contact us for more information on this.
4. Working from home..... Be sure you talk with your CPA before you take the home office deduction. This deduction is often abused, and many who claim it don't meet the qualifications. If you claim a home office deduction - you might get an 'automatic' red flag. Be sure you meet the requirements and that you really ARE working from a home office.
5. Entertainment and Nourishment - these expenses of day to day business are often abused, and the larger this deduction - the more 'automatic' the red flag for an IRS audit.Most under-reporting of income and overstating of deductions are done by those who are self-employed and the IRS is on top of it.
Be sure to keep detailed records documenting all your expenses claimed and keep your receipts!
These are just a few tips to help our clients avoid an audit. Of course, if you've enlisted the help of a CPA (like me) you're on your way to a smooth tax-return season!
