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Red Flags for the IRS

Posted by Matt Evans Posted on Dec 12 2014

These are some very common things the IRS pays extra attention to. If you have any of these issues please contact our office so we can prepare your return to maximize your deductions and not lose the deductions and expenses you are entitled to.

  • Claiming 100% business use of a vehicle. From the IRS’ point of view, it is rare for an individual to use a vehicle 100% of the time for business, especially if no other vehicle is available for personal use.
  • Deducting business meals, travel, and entertainment on Schedule C. Expensing big dollar amounts for meals, travel, and entertainment can cause extra scruntity on your tax return. If the amounts are to high for the type of business listed, expect a letter from the IRS.
  • Hobby loss write-offs. If you have wage income and file a Schedule C with large losses, you can expect a letter from the IRS. Typlical hobby issues include and are not limited to dog breeding, dance instruction, furniture refinishing, etc.
  • Claiming rental loss deductions. Real estate losses on rental properties is another area of interest for the IRS, especially those written off by taxpayers who claim to be real estate professionals. If you have a W-2 or other non-real-estate businesses that show high income this can be a red flag.
  • Operating a small business. Owners of cash-intensive small firms such as taxi companies, hair salons, pet groomers, etc. can often be the target of an audit, so be prepared to substantiate all of your income and your expenses.
  • Owning a foreign bank account. The IRS has been able to obtain the ownership information for offshore bank accounts, especially those in tax havens, and is committed to ensuring that income stored in these accounts is reported by U.S. citizens. Failure to report these accounts and the income can lead to stiff penalties and fines.
  • Taking higher-than-average deductions. The IRS may pull a return for review if the deductions shown are disproportionately large compared with reported income. But folks who have proper documentation shouldn’t be afraid to claim the write-offs.

 

While you should definitely take advantage of every tax deduction you are entitled to, sometimes it can be difficult to ascertain which deductions are applicable to your specific situation. Contact our office to help determine you determine you are entitled to deduct.


 

 

This blog is published to provide you with an informative summary of current business, financial, and tax planning opportunities.  Do not apply this general information to your specific situation without additional details.  Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that can not be summarized easily.  For details and guidance in applying the tax rules to your specific circumstances, please contact us.