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The IRS has the authority to audit an individual’s tax return to ensure that there is not any fraudulent activity occurring. Generally, the IRS can go back at least three years for an audit; however, if you have major errors on your tax return, the agency does have the ability to go back further. Typically, the IRS will limit itself to no more than the last six (6) years.
If you are being audited, the most important thing to remember is that you will need to have solid documentation to back up any claims you make about your overall financial picture, particularly your deductions.
Here is a list of additional items that could get your return flagged by the IRS:
1. Home Office Deduction - Taxpayers are required to have a dedicated space in their home that is strictly used only for their business in order to take advantage of this type of deduction. This deduction allows an individual to prorate some of their household expenses such as utility bills, homeowner’s association fees, and more on a fractional basis.
When claiming a home office deduction, an individual will need to figure out how much square footage is dedicated to their business in their home versus how much square footage they have in their home at large.
2. Deducting Unreimbursed Business Expenses - Unreimbursed business expenses are only deductible beyond 2% of your adjusted gross income. Most workers are also reimbursed by their employers for most out-of-pocket expenses. Expenses such as license fees, subscriptions to trade journals, tools and supplies, and specialty uniforms are deductible expenses. Having non-allowable deductions such as commuting costs and everyday work clothes are a no-no and should not be placed on your tax return. Doing so could trigger an audit with the IRS. This could end up being a very costly error in judgment.
3. Claiming 100% Business Use of a Vehicle - Taxpayers should consider keeping a paper log on their dashboard and writing down every mile that is used for work, the date, and what it was for. If you do want to claim all the costs for a business expense, be sure you have another vehicle too.
4. Hiring a Preparer Who Falsifies your Tax Return Without your Knowledge - Taxpayers should be cautious when hiring a tax preparer. There are many incompetent and unethical tax preparers who could end up costing you more than you expected. If the IRS sees a pattern of problems on your tax returns coming from one preparer, they may flag the entire operation’s returns for that year or the past several years. If an egregious error is found on any of your tax returns, you will most likely be held accountable for it.
5. Taking a Deduction for Alimony - Alimony is paid under divorce agreements and after the 2018 tax year, is no longer deductible. In addition, ex-spouses get taxed on alimony received under post-2018 divorce agreements. Individuals that attempt to deduct their alimony expense will likely trigger an audit with the IRS if there is a mismatch in reporting by the payer and the recipient of alimony on each of their tax returns.
Flat Fee Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact our IRS problem-solvers for a free consultation.