One of the easiest ways to catch the IRS’ eye is not to report all of your income. If someone had you fill out a 1099, they reported it to the IRS. However, if you forgot to mention it as well, things won’t add up, and they’ll definitely think that you’re intentions are less than honorable.
2. Business Deductions are Too High
Many think that working from home is enough to warrant receiving the home business deductions so they can save on meals out, travel expenses, vehicles, and even entertainment. Deductions that are higher than earnings may look suspicious if it occurs for more than three years.
3. Operating a Cash Business
If you run a cash only business, you absolutely need to have some form of paper trail. Because the IRS knows that much of these transactions can go without any sort of trace, they can easily wind up in the IRS’ crosshairs. As long as you can prove you aren’t hiding it all, you can reduce the amount of flags you raise.
4. Improper Deductions
Some think that being a local business owner means writing everything off. Unless the right deduction codes are used and items like claiming vehicles that double as personal use are deducted, the IRS will know you’re claiming too many deductions. Tax returns of 20% or higher than average will quite possibly get flagged.
5. Making Too Much Profit
Individuals and businesses that earn more get more attention as they have more money to hide from the government potentially. Businesses or individuals who make $1 million or more are much more likely to receive an audit, just as businesses with assets of $10 million and higher will be.
6. Not Claiming a Home Office Correctly
You can work from home, but in order to claim a “home office,” it needs to legally be a dedicated home office space that is used for business only. However, few know how to properly have their home office as an exclusive business center, leading to the IRS taking note, especially if you attempt to claim home expenses for your business.
Very few New Orleans business owners use a vehicle solely for business purposes. Claiming that you do is a great way to wind up with an audit. Instead, keep a log of every mile put on the vehicle for business purposes. If you do intend on claiming it as a solely business-only vehicle, you should have a separate personal vehicle as well.
8. Too Many Charitable Donations
Having a big heart can get you in trouble. The IRS will compare your donations to those of a similar income and determine if you’re trying to claim too many charitable donations. If you have received a receipt for all of your donations, you can prove that they were legitimate. At the very least, consider donating money with checks, as they are easily proven
9. Incorrect Real Estate Losses
You can claim rental losses, but doing so will make it seem like you are a real estate investment professional. Unless you spend half of your working hours, over 750 hours as a developer, broker, or a landlord, the IRS will think you’re simply putting on a second hat to get away with tax fraud. Before claiming real estate losses, make sure you qualify to do so.
If a New Orleans Accountant or Bookkeeping service is a little too good at their job, they may get flagged by the IRS. So by association, you will be flagged for using them. There’s a fine line between getting the return that you deserve, and getting a fat paycheck from Uncle Sam that shouldn’t be happening.
At Accounting Services Unlimited, LLC, we can ensure that the IRS will leave you alone and give you the audit protection you deserve. To make sure you're getting the best return or need an expert New Orleans accounting firm or bookeepper, call today to schedule your consultation and get through the upcoming tax season the safe & convenient way.