Wednesday, March 9, 2011

Audit Traps

7 Red Flags that could trigger an Audit:

1. Failing to include a form 1099 or other income (the IRS matches 1099s in their records to your return)
2. Inflating home office deductions  (your home office should be used "exclusively and regularly for your trade or business.")
3. Citing too many losses on a Schedule C (filing a loss year after year is a red flag)
4. Claiming disproportionately high charitable deductions
5. Using too many round numbers (tax return numbers should not be estimates, they should be exact)
6. Reporting rental real estate losses when you don't materially participate 
7. Citing too many business-related deductions (expenses should be ordinary and necessary)

No comments: