7 tax mistakes to avoid to reduce the odds of an audit

KNOXVILLE (WATE) – Many of you are likely starting to think about filing your tax return for this year. Before you send it in, you’ll want to double-check that you haven’t made a mistake that could trigger IRS scrutiny.

Nobody wants an IRS tax agent knocking at the door and asking for a shoebox full of receipts, but unfortunately, there’s no surefire way to avoid an audit. However, you can greatly reduce your odds of an IRS inquiry by avoiding some common mistakes when filing your taxes.

The first thing you don’t want to do is hire the wrong tax preparer. If you select one who is incompetent or unethical, he or she could spell big trouble for you. If the IRS audits one of the returns the tax preparer filed and finds significant problems, the agency could decide to audit all the returns that person prepared for the year, or for the past several years.

Let’s say you breed and sell dogs, or resell garage sale purchases on eBay, and at the end of the year, you realize expenses exceeded what you made and you decide to deduct a tax loss from your business. However, if you do that for three or more years, the IRS is going to get suspicious. A business is something that makes money. If you haven’t made money in three years, the IRS may believe what you have may actually be a hobby. The IRS doesn’t allow business deductions for hobbies.

Experts generally agree that claiming excessive charitable contributions and claiming a home office are the two deductions most likely to raise red flags with the IRS. If you donate a large percentage of your income to charity, be sure to keep careful records. Too many contributions, relative to your income, can be a problem. As for the home office, the most important thing to remember is you can only deduct a home office if you use that space exclusively for business.

When housing prices were depressed, some people converted homes into rentals rather than selling them. Those who found the rent didn’t cover the mortgage and taxes may have assumed they were entitled to take a deduction for the losses.  Not so fast. You have to either be an active participant in the management of your rental or a real estate professional to do that. Make sure you’re eligible to deduct the losses before doing so.

The last mistake on our list is also the simplest mistake to avoid: math errors. If you can’t add and subtract correctly, the IRS might start wondering what else you got wrong in preparing your return. Avoid this audit trigger by using tax software, or an online program that will ensure the calculations are correct. If you earn less than $64,000, you can find free online tax preparation through the IRS Free File program.

More stories you may like on 7News

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s