Money Talks News: Tax Hacks 2014: Tips to Avoid an Audit
Wed, 22 Jan 2014 11:43:42 GMT —
It's that time of year when Uncle Sam wants: your money, in the form of income taxes.
One way he can get it: Tax audits. For obvious reasons, the IRS is never going to tell us exactly how they choose a return for audit.
But we do know there are some red flags you really need to be aware of:
First: Wrong preparer. If the IRS believes your accountant is claiming fake deductions, they could audit all of their clients. So beware of bold claims.
"You know anyone who says that I can guarantee you that you're going to get a refund, that's just impossible."
Red flag number 2: Calling something a business and deducting losses on it when it's actually a hobby, thus not eligible for deductions.
Want to qualify as a business, sooner or later, you have to make money.
"Generally when you're into the third year, and you still continue to show a loss -- the IRS might consider that to be a hobby."
And speaking of small business, according to the Wall Street Journal, those who write off their small business expenses on a Schedule C are way more likely to be audited than those who incorporate.Another potential red flag?
Taking deductions for things like charitable contributions that are large relative to your income.
Bottom line? You should always take every deduction you're entitled to, red flag or not. But if you're in a gray area, make sure you've got everything documented.
I've got 5 more audit triggers you should watch for, right here at moneytalksnews.com.
Just search for "Tax Hacks 2014."
For Money Talks News, I'm Stacy Johnson.