Tax Tips

being very careful in how your tax return is prepared.

Following are some tips to help keep the odds of being audited lower:

Contributions

• Be careful with non-cash contribution amounts involving things like clothing, furniture, old computers, and so on. High amounts in this category are a big red flag.

• Any deduction valued at $5,000 or more requires an appraisal; a total amount of $500 or more requires completion of form 8283, listing everything in detail.

• Don’t get too enthusiastic about the value of your old stuff.  It’s basically worth what you could get for it in a yard sale.

Home Office Deductions

• Home office deductions are OK, unless they are too large. Keep the size small, like 10 feet by 10 feet.

Complete Your Schedule C

• Be sure to complete page 2 of your Schedule C (the form on which you report your business income and expenses) relating to auto expenses. It calls for business, personal and commuting miles (driving back and forth to your traditional job) to be recorded.

• This allows for the IRS to determine if the amount of miles you claim for business is reasonable.

• Don’t list your mileage numbers with too many zeros (i.e., 10,000 miles).  This tells the IRS you didn’t keep proper mileage records.  (Read IBO Bookkeeping 101 here on the IBOAI website to refresh yourself on documenting auto expense.)

Sign Your Return

• Be sure to sign your return if you file by mail.

Reporting Income

• Report all income, whether you received a W-2, 1099, and so on, or not.  These forms are also submitted to the IRS and will be matched up to your return.

Reporting Losses

• Large losses from your business compared to a small amount of income from other sources is a big red flag.

• The IRS wants to know how you are paying for the losses.

If you are audited don’t panic.

Just be honest with the auditor, get your documentation organized in an easy-to-understand manner, and respond quickly to all requests.

It is generally a good idea to seek professional help when being audited.

Joe

Learn more about Joe DePetris, Jr., and IBO tax return preparation and tax issues at IBO Bookkeeping 101.

Find more Tax Tips for IBOs from Joe DePetris, Jr., CPA.

This article is provided as an educational resource for your guidance, and is strictly informational. It does not constitute legal, accounting, or other professional counsel. Nothing included herein implies a recommendation by the author, the IBOA International, or Amway Global, of any course or method of regulatory compliance. Readers and users who intend to take, or refrain from taking, any action based on information contained herein should first consult with their qualified tax advisor, preferably a C.P.A., or appropriate regulatory authorities.