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Common Errors in Tax Deductions that Get the Attention of IRS Auditors
By Darrin Mish
People avail of as many tax deductions as they can. Certainly, this is because they don't want the IRS tailing them every now and then and because they want to save as much money from taxes. In many cases, however, legal deductions are abused or their guidelines are loosely worded that they can be subject to a lot of interpretations. Although these deductions are provided to taxpayers for some valid reasons, large amounts will certainly alert any IRS agent that something is not right, and as a result, audit will be needed. Everyone is aware that IRS problems come after an audit. One of the commonly misunderstood deductions is the home office. Many people believe that if they simply have a home office, where they work and do business, then they'll be able to deduct the value of their entire home. There are criteria and specific guidelines on when you would be able to deduct such a generally large sum of money. Understand that IRS auditors have often seen many inconsistencies and mistakes on tax returns. In fact, there is a system that will help them in making a decision to conduct an audit and in calculating the accuracy of items on tax returns. If you have simply deducted the full value of your house because you have a home office, then you're up for some IRS trouble. Business owners also believe that they can deduct the entire amount of their auto expenses from their taxes when they advertise their company's name on their cars. Sadly, they can only claim for deductions that are related to the cost of the paint and advertising paraphernalia. Another option is claiming for a deduction on a certain percentage of their total auto expenses. This percentage is equivalent to the vehicle's mileage for business divided by its total mileage. For instance, if you have a total yearly mileage of 10,000 and 2,000 of this is utilized for business, then you can claim for 20% of your total auto expenses as deduction. This case then magnifies the necessity to keep accurate records of your mileage so you won't have IRS problems when claiming deductions related to your auto expenses. Deductions related to body parts and pets also commonly appear on people's tax returns. Surprisingly, people do try to claim for deductions of body parts donated to science. Sadly though, if these donations are for non-profit groups and not 100% of your ownership rights and interests are given up, these are not valid claims for deductions. The IRS doesn't consider donating a body part alone as giving up 100% of your ownership rights or interest since it's just a 'part' of your body. Anyone who tries to deduct either body parts or their pets on their tax returns must also prepare to deal with some IRS problems.
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