8 IRS Audit Flags

1. Business Use of Your Car

Don’t guess how much you drove your car for work. You can base your deduction on your actual expenses or use the IRS’s standard mileage rate of $.55 a mile — but either way, the IRS could ask you forrecords of your business mileage and an accounting of the purpose of every trip claimed. GPS devices and precise calendar entries can be very effective in bolstering your claim.

2. Home Office Deductions

You can claim a home office deduction for a percentage of your mortgage, utilities, phone bills, insurance, and maintenance allocated to space used “exclusively and regularly” as a principal place of business. A lawyer who occasionally writes briefs in a study that is also used as the family’s TV room will have trouble claiming the space as an office.

3. High Itemized Deductions for Your Income

Don’t try to claim $25,000 in charitable contributions if your income is $125,000. “The IRS has a range in which they consider certain deductions reasonable,” says David Vishnia, a CPA in New York. “If your return doesn’t fit the IRS’s profile, the computer kicks it out, and a human being looks at it.” The average charitable contribution is $3,790 for people with adjusted gross incomes of $100,000 to $200,000 who claimed charitable donations, according to the most recent IRS statistics.

4. Non-Cash Charitable Contributions

These could be clothes, household goods, artwork, a car, or any kind of property. The IRS requires you to file Form 8283 for donations over $500. “That form alone is a red flag,” says Vishnia. The key is having all the supporting documents. Make sure you have an itemized receipt for contributions to Goodwill, Salvation Army or a church clothing drive. If you’re given a blank form to list your donations, make sure you fill it out and have the charity sign and date it.

5. Investment Income Discrepancies

Your bank, broker, and mutual funds send the IRS statements listing every penny they paid you. But financial institutions make mistakes. For example, if you make your 2009 IRA contribution between January 1 and April 15, 2010, your broker might inadvertently report the tax year as 2010. “All he has to do is check the wrong box,” says Vishnia. “When you make the contribution, be sure to get a receipt from the brokerage stating the tax year.”

6. Math Errors

This is a gimme for the taxman, so check your numbers. Then check them again. It doesn’t matter if you underpay your taxes because you added the numbers wrong, any underpayment will be due — with interest, currently 4 percent compounded daily. You will even owe a penalty of one-half percent of the tax owed for each month the tax remains unpaid, up to 25 percent, although the IRS might waive it. The IRS has three years to find the error and notify you, and all the while interest and penalty accumulate. Every day.

7. Home Buyer Credit

The new tax credits for first-time home buyers (up to $8,000) and homeowners trading up, down, or sideways (up to $6,500) require that all documentation for these write-offs must accompany your return. This means you must file your 1040 on paper, not electronically. First-time buyers must attach Form 5405 and a copy of the settlement statement or a dated certificate of occupancy. Homeowners need evidence they’ve lived in the house they sold for at least five consecutive years of the last eight; you could include mortgage interest statements, property tax records or homeowners’ policy statements. If any documentation is missing, your credit could be disallowed.

8. New-Car Sales Tax Deduction

You may be able write off sales tax on a new car you bought between February 17, 2009 and January 1, 2010. You don’t have to itemize to claim the deduction, but the eligibility rules are incredibly complicated. In fact, there’s a new 11-line worksheet just for this tax break. No one said saving money was easy.

Posted by Gustavo A Viera CPA 1 at 3/24/2010 11:01 AM
Categories: Tax, QuickBooks, Audit, Accounting
Tags: miami accountant miami cpa financial projections compensation S Corp CPA audit cpa miami accounting small business tax
Previous Post
Next Post

 

What did you think of this article?




Trackbacks
Trackback specific URL for this post
  • No trackbacks exist for this post.
Comments
Display comments as (Linear | Threaded)
Page: 1 of 2
Page: 1 of 2
Leave a comment

 Name

 Email (will not be published)

 Website

Your comment is 0 characters limited to 3000 characters.