Tax Deductions That Are Immediate Red Flags For an Auditor

Taxpayers instinctively want to claim for every possible tax deduction that they can qualify for. Surely, this is because they do not want the IRS tailing them every once in a while and because they want to save as much money from taxes. However, there are some legal 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 provided to taxpayers for some valid reasons, large amounts will certainly alert any IRS agent that something is wrong, and as a result, audit will be needed. People are aware that IRS problems come after an audit.

One of the most misunderstood deductions is the home office. A number of people believe that if they simply have a home office, where they work and do business, then they will be able to deduct the value of their entire home. There are criteria and specific regulations on when you would be able to deduct such a generally large sum of money. Be aware that IRS auditors are experienced in spotting inconsistencies and mistakes on tax returns. In fact, there is a system that will assist them in making a decision to conduct an audit and in examining the accuracy of items on tax returns. If you have simply deducted the entire value of your house because you have a home office, then you're up for some IRS issues.

Another common mistake for entrepreneurs is thinking that they can deduct their entire auto expenses when they put company advertisements on their vehicles. What they must know is that only deductions equal to the cost of paint and other advertising materials can be claimed. They may also claim a percentage of their vehicle's auto expenses though. This can be calculated by getting the proportion of the car's mileage for business use and dividing this by its total mileage. For instance, if you have a total annual mileage of 10,000 and 2,000 of this is used for business, then you can claim for 20% of your total auto expenses as deduction. This scenario then magnifies the need to keep accurate logs of your mileage so you will not have IRS problems when claiming deductions related to your auto expenses.

Strange as it may seem, many people claim for deductions on body part donations, especially if these are made for the advancement of science. However, in most cases, deductions for donations to non-profit organizations are only allowed if 100% of your ownership rights or interest is given to them. Since only a body part is donated, the IRS doesn't qualify this action as giving up 100% of your ownership rights. Hence, anyone who tries to do this will certainly encounter IRS problems.

Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com