Nothing gets the blood pumping like a notice from the IRS letting you know you’re in for a tax audit. According to Kipplinger Magazine, there are signs some tax payers are more susceptible to audits than others.
Here are some red flags for the IRS:
- High income: Incomes over $200,000 are 26% more likely to be audited, as well as one in nine persons earning over $1 million dollars.
- Failing to report all taxable income: Tax payers forget the IRS gets copies of all 1099’s and a mismatch sends a red flag.
- Taking large charitable deductions: Be sure you know the rules regarding various kinds of charitable gifts and you can document not only the amounts given but the charities as well.
- Business write-offs: Deducting business meals, travel and other expenses. Again, there are guidelines on what you may and may not deduct—be sure to follow them.
- Claiming 100% business use of vehicle: Very few workers use their car for business all the time.
- Taking alimony deductions: These deductions can only be taken when made part of a separation or divorce decree---not arbitrarily.
- Running a small business: The IRS is well aware there are many opportunities for tax deductions but again the rules are precise—follow them.
- Failing to report a foreign bank account: New rules have gone into effect in 2014. Foreign bank accounts will require registrations and will be reported to the IRS.
- Engaging in currency transactions: Cash deposits and withdrawals over $10,000 are reported—be ready to explain.
- Taking higher than average deductions: The IRS has estimated percentages of deductions they deem “average” for various income levels. If your deductions fall outside these estimates, be ready to explain.
If you have any of the above deductions, have detailed documentation on the what, when and why of your deductions. Good record keeping can help make the audit go away as easily as it was announced.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. C14-022520