The deadline for filing your income tax return is rapidly approaching. Filers are often tempted to fudge the facts on their tax returns in an effort to get a bigger refund. But that tactic can backfire on you, resulting in an Internal Revenue Service Audit. Here are six of the more common ways of increasing your chances of an audit.
6. Suffer certain types of losses. If you claim a business loss or rental property loss, it may send up red flags. In recent years, many people have decided to go into business for themselves, and ended up with expenses that exceed their business income. Taxpayers often try to deduct hobby expenses as a business loss (“I really expect my cat circus to turn a profit!”), and if they don’t think your business stands a reasonable chance of succeeding, your loss may be denied. Real estate rental income, on the other hand, is usually considered passive income and losses may not deductible.
5. Claim that your car is used only for business. The IRS knows that few automobiles are used strictly for business—and it’s wary of taxpayers who claim 100% business use of their motor vehicle. If you’re making such a claim, you’d better have the documentation to back it up.
4. Take higher-than-average deductions or claim exceptionally large charitable contributions. It’s no surprise that the IRS compares your return to the average return of other taxpayers reporting similar income levels. If you’re paying less tax because you’re taking much bigger deductions, it sends up a warning flag and may trigger an IRS tax audit. (Before you file your tax return, some tax-prep software will tell you how your return compares to other returns in the same income bracket. It’s a useful guide to knowing how your return stacks up.)
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Tax Law Updates
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