Question: I want to file for all the deductions I qualify for, but they add up to a lot. Will the IRS audit me?
Answer: It’s possible. But don’t let it stop you from taking valid deductions and the credits that you deserve. As long as you do so correctly and back up your claims with proper documentation, you’ll be fine.
Sure, it can be harrowing getting an envelope in the mail with “U.S. Department of Treasury” typed in the upper lefthand corner, said Steve Buschell, a tax partner at the accounting firm BDO Seidman: “These tough businessmen turn to jelly.”
The IRS figures out who to audit through a computer generated calculation called a discriminate function system, or DIF score. No one except the IRS knows the exact equation for the DIF score, but it’s basically a formula comprising certain red flags. If the score’s high, you’ll be contacted.
So be prepared for that dreaded letter if you think your filing will trigger these red flags:
Large deductions, especially for work-related meals and entertainment, or if they are huge compared to your income.
If you feel like you’re stretching it, you probably are. (Don’t confuse hobbies with business. And that Persian rug in your home office? It’s unlikely to qualify as a work-related expense.)
Big credits for things such as child care or higher education. There are also new credits out there, for example, for using energy saving devices or driving a hybrid car. If you have a long list of credits that add up to a lot of money, the IRS is going to take notice. Take them if they’re valid, of course, but be sure to have the records to back them up so you’re prepared if the IRS contacts you about them.
If you are self-employed. The IRS is keeping a closer eye than ever on the self-employed, suspecting that some don’t report all their income. Low incomes with large expenses raise questions.
If you forget to include income on your return from all your 1099s, those forms you get from the places you invest your money (banks, mutual funds, etc.)
Non-cash charitable donations. If you donated your old clothes and jewelry to a shelter, that’s great, but don’t try to overestimate how much they were worth. There’s a big chance the IRS will question it.
Lots of dependents. Obviously, if you really have 9 kids, list ‘em all – you deserve the deduction. Just don’t be surprised if your filing catches an IRS agent’s eye.
Silly errors such as leaving off your signature or mistyping a Social Security number. They may not trigger an audit, but it’ll ensure that your filing gets a second look, and will delay any refund you’re entitled to.
Associated Press
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