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Certified Accountant

Certified Accountant Red Flags that invite a Tax Return Audit

Wondering what triggers an IRS audit? Some returns are randomly selected, while others are part of a targeted group. Here are just some of the things that could grab the Internal Revenue Service’s attention.

Red Flags:

• Not including all of your income. Never a good idea, but you are really asking for trouble if you are claim a low income compared to your substantial financial obligations.

• Earning over $100,000. It isn’t fair, but if you fall into this category your odds of being audited are increased.

• Claiming the earned income credit. At the opposite spectrum, if you are trying to get this tax break you have to be careful, the requirements are very strict.

• Child and dependent care credit. This frequently becomes a problem when both parents of a divorced couple claim the child.

• Math mistakes and incomplete forms. If your return isn’t filled out properly and your numbers are not adding up then it’s and invitation to be audited.

• Disagreement between state and federal tax return. One of them has to be wrong.

• Dramatic unexplained changes in your income.

• Deducting large amounts for charitable contributions, especially non-cash contributions. There’s nothing wrong with this as long as you have documented everything properly and meet the requirements.

• Reporting a loss on a small business. The IRS really likes to look into this if you are employed elsewhere and may require you to prove that it is indeed a business intended to earn a profit, not merely a hobby.

• Excessive write-offs compared to your income.

• Contrasting interest and dividend reporting.

• Claiming a home office, especially if you are also employed outside the home or if you attempt to claim a relatively large percentage of your home as your office.

• Claiming large meal, entertainment and auto use deductions. This can get you in trouble if they are excessive and unbelievable or if your position doesn’t warrant these types of expenses. For example your position is medical billing.

• Declaring significant casualty losses. You must abide by the strict regulations.

• Rental losses, especially if the rental property is a former residence you are limited to the amount you can deduct.

The bottom line, is if you have earned a deduction take it, but the rules for claiming some of them are strict and detailed so make sure you have all the facts. If you think you may qualify for some of the deductions mentioned above it’s a good idea to have a certified public accountant prepare or at least review your return, it could save you hours, headaches and money.

To schedule an appointment or ask a question click here: Certified Public Accountant Traverse City & Suttons Bay

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