Are there deductions that are red flags that may help to trigger an IRS audit? What are some of the known IRS audit triggers, and what should you be considering at this time?
With the end of another year approaching, many of our clients are already considering tax preparation and planning for 2016. Allen Barron is uniquely positioned to help in all areas of tax planning, tax preparation and representing you or your business before the IRS or a California tax agency.
There are three items that have been recently been cited in USA Today, and by many tax advisory services as potential audit triggers: Home Office Deductions, Charitable Donations and Unreimbursed Work Expenses. Home office deductions must be carefully considered as this opens many areas of inquiry for the IRS. Many Americans work from home, and it is appropriate and legal to claim a percentage of related expenses on your tax return. The primary issues associated with this deduction are documentation and an appropriate percentage of the actual space set aside in your home and dedicated for business purposes.
Charitable donations have become much more regulated over the past several years. Most charitable organizations, especially churches and service organizations, are now reporting specific contributions and tying them to a specific taxpayer. You will be required to document charitable contributions, and the IRS maintains a substantial data analysis of typical giving trends. If you are outside of the “normal” curve for charitable contributions it may trigger an audit.
Unreimbursed business expenses are a primary focus with the IRS. Most employers reimburse employees for appropriate business related expenses. So a taxpayer with a high amount of unreimbursed business expenses may be immediately suspect in the eyes of the IRS. If you are claiming un-reimbursed expenses you should have substantial documentation (in real time) and be prepared to fully explain to the IRS why your employer did not reimburse you for these expenses.
IRS audit algorithms are a tightly kept secret, but there are identifiable trends that become evident over the span of time. If you are concerned about an IRS audit or have been contact by an IRS Revenue Officer or Notified of an upcoming audit you should contact us immediately for a free and substantive consultation at 866-631-3470.