For Mark Roberts’ Use: As tax season gets underway, you’re probably looking for every deduction and credit that could possibly help you lower your tax liability. But be careful when you file your return, or later in the year you could receive the bad news that you’re being audited by the IRS. Nothing is guaranteed, and sometimes the IRS does conduct purely random audits, but in general they look for certain red flags. Avoid making these mistakes with your return, and you stand a better chance of avoiding an audit.
Claim 100 percent of income received. The IRS employs a matching program that allows them to double check income reported by employers and brokerages. Don’t try to omit income on your return.
Claim medical expenses correctly. Writing off medical expenses can help you lower your tax burden, but claiming this deduction can be tricky. Your total medical expenses must exceed 10 percent of your adjusted gross income (if you are under 65; there are separate rules for those over 65).
Calculate work-related deductions carefully. The IRS allows you to deduct travel expenses for work trips, or some of the costs of your vehicle that you use for business. But be careful about claiming these deductions; the IRS might take a second look at returns with large travel deductions, or those that claim a vehicle is used exclusively for business. Unfortunately, regular commuting expenses are not deductible.
Be careful with home-based business expenses. The IRS is well aware that some taxpayers take liberties with the deduction for in-home offices. Be very careful in your calculations.
Claim your divorce settlement. If you receive alimony from a divorce settlement, this income is taxable. And since your former spouse will likely include these payments on their tax return, the IRS will know about them. On the other hand, child support payments are neither tax deductible nor taxable; don’t include these on your return at all.
Claim dependents correctly. Claim dependents as required by your divorce settlement. If both you and an ex-spouse claim the same children as dependents, the IRS matching program will notice that the child’s Social Security number was listed on two different tax returns.
Be careful about claiming charitable donations. Charitable donations are often scrutinized by the IRS. Claim your deductions carefully, donate only to approved charities, value your donations according to IRS rules, and keep your receipts.
Report depreciation of rental property correctly. While losses can occur with rental property, the IRS is aware that no one keeps renting out property at a loss, year after year. Calculate your depreciation correctly, and don’t try to claim excessive losses unless they are well documented.
Be careful with stocks. Use the correct cost basis to calculate stock gains and losses. If you’re audited and have not included the correct cost basis, all proceeds from the sales of stocks will be treated as gains.
Report health insurance status correctly. If you weren’t covered by health insurance last year, you will be charged a penalty unless you qualify for an exemption. Check the list of exemptions carefully and answer this question honestly. If you were covered for part of the year, the IRS will calculate only a partial penalty.
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