Common Mistakes in Tax Deductions that Get the Attention of IRS Auditors

It's natural for taxpayers to try to claim as many deductions on their annual tax returns. It is clear that they do not want the IRS any more than they actually have to, and that they want to pay less whenever possible. However, several tax deductions have been utilized so many times or claims for deductions are almost irrational that when these are reflected in the tax return, the IRS will always notice. Yes, tax deductions are provided for some valid reasons but sometimes, amounts claimed are so large that any IRS agent will decide to subject that tax return to an audit. It is important to note that an IRS audit will cause you to have problems related to your taxes.

One of the most 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 will be able to deduct the value of their entire home. They do not grasp the idea that certain rules are outlined to orient taxpayers of the extent of their rights. Understand that IRS auditors are experienced in seeing inconsistencies and errors on tax returns. In fact, there is a system that will assist them in making a decision to conduct an audit and in calculating the accuracy of the entries 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.

Another popular deduction is often taken by business owners who advertise their company's name on the side of their vehicles. They believe that they can automatically deduct all their auto expenses from their taxes. Sadly, this tax deduction doesn't operate in that manner. Normally, they can only avail of deductions related to the cost of the paint or the other advertising paraphernalia used on the vehicle. They will also be able to take a small deduction on the vehicle's auto expenses, however, this is only based on the car's business use. That's computed by dividing the business mileage you tracked (it's a good idea to have an actual mileage record so that you can show auditors your excellent record-keeping abilities in case you do get audited) by the total mileage. Hypothetically, if you drove your vehicle 10,000 miles in the course of a year, and had 2,000 of those miles counted as business, then you would be able to deduct 20% of your auto expenses. This example illustrates that there is indeed a necessity to keep accurate mileage records so you have something to show the IRS when they conduct an audit on your tax returns.

Other deductions that commony pop up on people's tax returns yearly are body parts and pets. Surprisingly, people do attempt to claim for deductions of body parts donated to science. Sadly, in most cases, donations to non-profit organizations cannot be deducted unless 100% of your ownership rights, or interest, is donated. And since this undertaking only involves a body part, this does not qualify for the 100% giving up of your ownership rights. Hence, anyone who claim for deductions on body parts and pets are sure prospects of an IRS audit.

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