Avoiding the Audit – Some Common Pitfalls that Raise the Red Flag

  • Mar 28 2017

Studies have shown that, with the advent of tax software and online programs, more and more people are choosing to do their own taxes. While this is not necessarily a bad idea, if you are not careful, you might make some common mistakes that could lead to an audit.

  1. Math Errors:  While most tax software conveniently does calculations for you, it is easy to miss a number or two when putting in your data. One missed zero or misplaced decimal point can cause things to go horribly awry.  It is important to double and triple check your numbers. Don’t do your taxes when you are tired or distracted as you will be more likely to make a mistake and don’t wait until the last minute so that you won’t feel rushed.
  1. Failing to Report 1099 Income:  1099’s are issued when you have done work for someone as an independent contractor or freelancer. It is not part of your regular salary, but still counts as income.  For instance, suppose you work for a landscaping business as a salaried employee. Because of your love of orchids, your boss asks you to write an article about orchids for the company’s blog. He pays you separately, and it is not part of your regular salary. You may be tempted to skip reporting it.  However, your boss has probably filed a 1099, which means the IRS is already aware of it. If you fail to include it, you run the risk of raising a big red flag.
  1. Over-Estimating Donations: Many of us have had situations where we’ve donated used clothes or other items included as charitable deduction at tax time. It is tempting to embellish a bit here and there, maybe bump up the value a little, or fudge the number of T-shirts a tad. Don’t yield to that temptation. When it comes to donations, even for clothes and other such items, it is important to keep written records of what was donated, to whom it was donated, and the real estimated value of the items. A little too much embellishing can lead to a whole lot of hassle if the IRS catches on.
  1. Home Office Deduction:  Many of us take work home from time to time. That leads some to believe that it is okay to take a deduction for a home office. This, however, is a big mistake. To qualify as a home office, the space in your home needs to be used “exclusively and regularly” for your business. Doing some research for work while you are watching the game on Sunday doesn’t qualify your living room as a home office, and claiming that it does may land you in a heap of trouble.

Of course, this is not a comprehensive list, but it does set forth some of the more common pitfalls.  If you are ever in doubt about how something should be calculated on your tax return, it is always wise to seek the advice of a tax professional.

Posted in: Tax Law