The CPAs at Salmon Sims Thomas explain how to reduce the risk of tax audits in your itemized deductions.
Many components can make a tax return look suspicious, even your itemized deductions.
However, only the exceptionally large deductions catch the attention of IRS auditors. Here is some information to consider when itemizing 2013 tax deductions.
The IRS uses computer programs to comb through information regarding itemized deductions. It can easily spot when an itemized deduction is above the normal range for a given income. Outsized deductions can be a red flag that trigger an audit.
Statistics on deductions are available in tax publications and sometimes in tax software. But these statistics do not often present a full picture for deduction limits. Consider the following points to determine if your list of Schedule A itemized deductions could look excessive.
- Geography. High property taxes are the norm in some states, and not in others. Audit software knows this.
- W-2. This document shows the amount of state and city income taxes that are withheld. A 1049 typically won’t trigger a red flag if the deductions you claim for income tax are similar to your W-Z.
- Age. Medical deductions on Schedule A typically come from taxpayers in nursing homes. Even if you are young and your medical deductions are normal, there is still a chance the IRS could flag you for an audit. Self-employed or small business incomes are often red flags. .
- A disproportionate amount of non-cash donations
- Tax Shelters such as property rented to noncommercial tenants who don’t have to report rent on a 1099, and Schedule C business loss for “hobbies” .
For more information about tax rates, extensions, education benefits, audit risks, IRAs, the alternative minimum tax, or charitable donations, please contact Jeff Bergman, CPA at Salmon Sims Thomas Accountants & Consultants.