We are in the middle of tax season in New York and the rest of the country, and it seems like everyone who is preparing their income taxes have a common fear in the back of their minds: being subject to a Tax Audit.
Because the IRS does some random auditing there is no way to protect yourself 100 percent; however, knowing what the IRS looks for can reduce your chances of getting targeted.
Last week, we talked about four potential traps that could result in audits by the IRS. They were: high income, above-average deductions, strategic or in-kind charitable donations, and small business expenses or small business negative gross profits.
Today we are going to talk about a few more red flags that the IRS looks for, including business expenses that are really hobby expenses, faking natural disaster losses and inaccurate mileage deductions.
The IRS seems to be cracking down lately on claims of business losses that were really hobby losses, such as horses or mini farms. In order for something like this to qualify as a business and not a hobby, there must have been real income and a profit in two out of five years.
Next, the IRS will be watching for people who inappropriately claim casualty losses from natural disasters such as floods or tornados. The IRS keeps track of natural disasters by zip code, so they will be aware of any fibs.
Finally, the IRS likes to ask for proof of business deductions for mileage, so be sure to keep an accurate record for if an audit should occur.
Let’s face it, no one wants to get audited by the IRS. But if you do, don’t consider yourself in trouble just yet. Talk to an experienced tax attorney in your area who can help you through the tax audit process, hopefully without any negative repercussions.