February 2, 2010
Common Mistakes in Tax Deductions that Get the Attention of the IRS
It is natural for taxpayers to try to claim as many deductions on their yearly tax returns. It's understandable that they do not want the IRS any more than they actually have to, and that they want to pay less whenever possible. However, there are some tax deductions that have either been abused too much or are simply too easy to abuse that whenever anyone claims any of these selected deductions, the Audit section of the IRS begins to take notice. Yes, tax deductions are provided for some valid reasons but sometimes, amounts claimed are so huge that any IRS agent will order an audit. It's important to note that an IRS audit will cause you to have problems related to your taxes.
Among the most misunderstood deductions is the home office. A number of people believe that if they simply have a home office, where they work and do business, then they will be able to deduct the value of their entire home. They don't grasp the idea that certain guidelines are outlined to orient taxpayers of the extent of their rights. Be aware that IRS auditors are experienced in seeing inconsistencies and mistakes on tax returns. In fact, there is a system that will help them in making a decision to conduct an audit and in calculating the accuracy of items on tax returns. When you deduct the total value of your home just because you claim that you have a home office, be ready to be audited and to handle some potential IRS problems.
Another usual deduction is often taken by business owners who advertise their company's name on the side of their cars. They believe that they can automatically deduct all their auto expenses from their taxes. Unfortunately, this tax deduction does not operate in that manner. Normally, they can only avail of deductions related to the cost of the paint or the other advertising paraphernalia used on the vehicle. They'll also be able to take a small deduction on the vehicle's auto expenses, but this is dependent on the car's business use. The deduction is proportional to the actual mileage dedicated to business use, hence, it's imperative to keep accurate mileage logs. For instance, 20% of your auto expenses may be deducted from your taxes if you have 2,000 miles for business use out of an annual mileage of 10,000. This example illustrates that there is indeed a necessity to keep accurate mileage records so you have something to show the IRS when they conduct an audit on your tax returns.
Other deductions that commonly pop up on people's tax returns yearly are body parts and pets. Yes, people try 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 donated, these are not valid claims for deductions. The IRS does not consider donating a body part alone as giving up 100% of your ownership rights or interest because it is just a 'part' of your body. Hence, anyone who claim for deductions on body parts and pets are sure prospects of an IRS audit.
Originally posted 2008-10-21 20:10:42. Republished by Blog Post Promoter
Filed under Blog by IRS Tax Attorney
