No one wants to pay more income taxes than required, but be careful when preparing your taxes. Attempting to cut your tax liability by getting into IRS grey areas can cause you problems later. You don’t have to do anything unethical to get your return pulled for an audit; you may have raised too many red flags. Also, an audit can be done via letter (i.e., CP2000 Notice), not just face-to-face. If you’re in the middle of an audit or owe back taxes, contact Jeffrey Schneider, EA, CTRS, to resolve your tax problem(s). Here is the top 10 red flags the IRS target that you want to avoid:

1. Making too much money

First, here’s a problem most of us would dream of having, making over $200,000! You’re honestly more likely to be audited. The fact is that there are fewer auditors, so the IRS is focusing on where they can make the most bang for their buck.

2. Not reporting all of your income

No matter how much or little you make, you have to report everything. In some way or other, unless you run a strictly cash business, all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated, then sent to the IRS. You will get a notice if your reported income doesn’t match theirs.

3. Math errors

Your information will be entered into a computer whether you file electronically or file a paper form. Remember, computers are very good at doing math, and if things don’t add up, or there was an honest mistake while inputting the information, it can raise a red flag. A math error won’t necessarily generate an audit, but it will get the attention you may not want. So make sure to double-check your returns. Better yet, have a qualified tax professional assist you and keep you out of tax trouble.

4. Home businesses that never make money

Sole proprietorships that file a Schedule C yearly and always show a loss will raise a red flag. You could even offer a profit, but if the profit margin is always unreasonably small, that will get the IRS’ attention.

5. Large charitable deductions

There is nothing wrong with being charitable, and there is no legal limit to how much of your hard-earned cash you can give away. It is another red flag, however, if your donation differs from what’s considered the norm.

6. Overstating business expenses

Depending on your job type, there can be many legitimate expenses that your employer doesn’t reimburse you for. Don’t be tempted to write off a little extra if you have your own business. These might be genuine deductions you’re considering. However, you don’t want to deduct something that’s not on the approved list, and don’t claim deductions way outside the norm. Check with your tax professional – or if you don’t have one, consider Jeffrey Schneider, EA, CTRS, NPTI Fellow – who is up to date with tax laws. You don’t want to be padding your tax return with write-offs.

7. Sketchy real estate rental revenue or losses

Some people rent their property to friends or family at well below market value and then claim average rental business expenses. As with other areas, the IRS compares what you claim against local standards to determine if this is a legit business. If not, they will disallow the deductions.

8. Home office deductions

There are absolutely legitimate home office deductions, but the IRS has stringent guidelines on what you can claim and how much. Try to claim too much, and this is a classic red flag.

9. Claiming losses for things that aren’t deductible or deductible in your circumstances

For example, claiming day-trading losses on a Schedule C. If you dabble in stock trading and take a loss, it may or may not be deductible but almost certainly doesn’t qualify for a Schedule C loss. You also can’t take a deduction for alimony as a business expense. The IRS maintains a list of non-deductible expenses. Make sure to check that and check with your tax professional.

10. Claiming 100% business use of your vehicle

If you spend most of the time in your car doing your job, you may think it’s easier to claim the whole amount as a business expense, but this is wrong. You will either have to show your personal use, no matter how small or have to show you have a second vehicle for personal use.

How it Gets Confusing

Many of these items are red flags for an audit, but many are also legitimate deductions. The key is to have a qualified tax professional on your side. Regarding tax resolution, Jeffrey Schneider, EA, CTRS, knows how to navigate the IRS maze. He can help you minimize the risk of an audit and the resulting tax problems down the road. Also, he will ensure you have meticulous records and keep you within the guidelines of the IRS.

If you need an expert tax resolution professional, reach out to us, and we’ll schedule a no-obligation confidential consultation. Jeffrey Schneider, EA, CTRS, will explain your options and help permanently resolve your tax problem.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow, has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax Problem Solutions, an Enrolled Agent, and a Certified Tax Resolution Specialist.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff describes and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and a detailed clarification of what is what in the world of the IRS.

The book is available in paperback and ebook at https://Amazon.com.
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For more on SFS Tax Problem Solutions, visit http://sfstaxproblemsolutions.com/.
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