3 Tax Deductions That May Lead To Increased IRS Scrutiny

Posted by: Brookside Admin

For many individual tax payers, there's a conflict tied to each return. On one hand, you want to claim any and every deduction in order to lower the amount of money you owe, but on the other hand, you want to avoid an audit at all costs. Claiming deductions doesn't necessarily mean you're likely to be audited, but because some deductions have been abused in the past, there are some red flags that go up at the IRS when certain deductions are claimed. Here are three common deductions that could cause the IRS to take a closer look at your next tax return. 

  • Home office

Deducting costs associated with working out of your home allows self-employed individuals to save big on their taxes. There's also a great opportunity to cheat within this deduction, which makes the IRS suspicious in many cases. To qualify, a portion of your home must be dedicated for business use. That means you use your home office often, it's the primary office for your business and you don't use that space for any other reasons. You can then deduct a portion of your mortgage and other expenses directly tied to the office, including office supplies, and furniture. Knowing that this deduction also lead to increased scrutiny, it's important to be organized and document everything. Have pictures and measurements of your home office, and keep receipts for all office-related purchases. 

  • Charity

Contributing to local charities is a worthy cause and can allow you to save on your taxes when you itemize. If you donated money through a check, it's easy to verify that your donation and deduction are legitimate. Where this deduction has been abused is through donations of items. Individuals have claimed donations of vehicles, furniture, electronics and clothing and claimed thousands of dollars in deductions. These donations are harder to verify and are likely to come with increased attention from the IRS. Again, keeping records is important. Try to get an itemized list of the accepted donations from the charity, along with the receipt they often give you. Also include when the donation was made, and how you determined the value for each item. The IRS will use other taxpayers with a similar household income as you to determine if your donation is out of the ordinary. For example, if you make $50-thousand in 2015, claiming to have donated $15-thousand to charity will likely set off alarms, but donating $1000 in items throughout the year may not. 

  • Business expenses

If you don't work from home, you may still be able to claim tax deductions for business-related expenses. If you regularly pay for items solely for your job, and aren't reimbursed by your employer, you can itemize and earn a deduction. You may not think you would qualify for this deduction, but there are many expenses that can be used. Organization dues, trade magazine subscriptions, and specialty uniforms are all qualifying expenses in many cases that an employer may not reimburse for. Before claiming any of them, however, you should be able to explain why they are business-related and why your employer didn't reimburse you for them. If you have strong answers for both, you should claim these expenses. 

In most cases, the IRS will be looking for unusually large deductions, which means that if you have a legitimate deduction, be sure you can back it up with extensive records. This may not be able to save you from being audited, but it will ensure you have the necessary files to make it through without owing any additional money. 

To ensure your tax return is prepared correctly, and for protection in case of an audit, contact the professionals at Brown Kinion and Company today.