Tax Deductions that are Immediate Alerts for an Auditor

Taxpayers avail of as many tax deductions as they can. This is primarily because of their desire to rid themselves of the IRS or save as much money on taxes. However, there are some tax deductions that are commonly 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 given to help taxpayers save some money, others claim for very huge amounts that the IRS audit section will be prompted to make an investigation. Everyone is aware that IRS problems come after an audit.

One of the commonly misunderstood deductions is the home office. People think that they can claim a deduction equivalent to the entire value of the house if they make it an office. There are criteria and specific guidelines on when you would be able to deduct such a generally large sum of money. Understand that IRS auditors have often seen many inconsistencies and errors on tax returns. In fact, there is a system that will assist them in making a decision to conduct an audit and in calculating the accuracy of the entries on tax returns. If you have simply deducted the entire value of your house because you have a home office, then you are up for some IRS issues.

Business owners also think that they can deduct the total amount of their auto expenses from their taxes when they advertise their company’s name on their cars. Unfortunately, they can only claim for deductions that are related to the cost of the paint and advertising materials. Another option is claiming for a deduction on a certain percentage of their total auto expenses. This can be calculated by getting the proportion of the car’s mileage for business use and dividing this by its total mileage. To demonstrate, if your vehicle has a total mileage of 10,000 miles per year and 2,000 of those are used for business, then you are entitled to 20% of your total auto expenses as deduction. This case then magnifies the need to keep accurate records of your mileage so you will not have IRS problems when claiming deductions related to your auto expenses.

Other deductions that routinely appear on people’s tax returns yearly are body parts and pets. Yes, people attempt to make deductions on body parts specifically when these are donated for scientific purposes. Sadly though, if these donations are for non-profit groups and not 100% of your ownership rights and interests are given up, these are not acceptable as deductions. And since this undertaking only involves a body part, this doesn’t qualify for the 100% giving up of your ownership rights. Anyone who tries to deduct either body parts or their pets on their tax returns must also prepare to deal with some IRS problems.