Tax Nuances That Could Get You Audited

By most accounts, Internal Revenue Service auditors aren’t much fun to meet with. Even if you’ve filed your taxes with impeccable precision, facing an audit can be nerve-wracking, so you’re best off making sure you aren’t tossing up any signs that draw attention to yourself.

Time Magazine’s MoneyLand recommends avoiding these moves that place “audit me” signs on your rear end:

* Math errors. Make sure your calculations make it look as though you made or owe less than you actually did.

* Big charity deductions. Claiming charitable contributions of more than 3 percent of your earnings can nudge you toward the danger zone, and attempting to deduct big non-cash contributions can be trouble.

* Home offices. Make sure everything in your home office is used for business purposes. And know that salaried employees with this deduction tend to face more scrutiny than contractors.

Tax Tips: 7 Red Flags That Can Get You Audited [MoneyLand]

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  1. Extended-Warranty says:

    I love watching people abuse tax exempt and deductible purchases for their ‘business” get caught.

    • repeater says:

      I hate getting scolded every year by other people I know who don’t actually read or fully understand the tax guidelines. Apparently I’m a fool if I don’t deduct my gaming computer, cause as long as you log in to your work email on it once it’s a business expense! And you were *in* your house when you logged in, so deduct half your monthly rent, too!

      I try and explain that there are very strict rules and nuances to deducting home business expenses, but they just roll their eyes. And none of them have ever been audited.

      • Awesome McAwesomeness says:

        That’s too bad. Those people aren’t paying their fair share, which contributes to our budget deficit. If everyone paid what they were supposed to, our government would have more money to work with. That’s not something we think about as a nation, but I’ll bet our country loses tons and tons of money just from small crap like that.

        • Mark702 says:

          Or the government could just stop giving away billions of dollars in foreign aid, trillions for foreign wars, billions for the failed war on drugs, hundreds of millions on the boondoggle known as the TSA, and ….

          • Jer in Denver says:

            Here, let me fix that for you:

            “*AND* the government could just stop giving away billions of dollars in foreign aid, trillions for foreign wars, billions for the failed war on drugs, hundreds of millions on the boondoggle known as the TSA, and …. “

            Reduce expenses and increase tax income. What an idea!

            • Cor Aquilonis says:

              Stop it. If we start doing that we might have a balanced budget and pay down debt, and we can’t have that.

          • partofme says:

            That would fix the problem of people not paying their appropriate taxes? Interesting…

      • jefeloco says:

        My coworker complains to me that she got audited three years ago and again last year. She and her husband now have to pay a little of $600 a month to the IRS through July 2013, all because they would deduct everything they bring into their house as business or education expenses.

        They haven’t filed their taxes this year because they’re trying to “game” away almost $5000 that they owe. That amount was even double checked by two CPAs, some people just never learn their lessons.

        • repeater says:

          Wow, they are trying to do it again? I don’t understand fussing that much over your taxes. Hiring multiple CPAs, all the time it takes to fill out this junk and fret about it, etc.

          How about just filling it out normally, paying what you owe, and moving on? What a crazy idea!

          Also those type of people tend to go on rants about how they don’t like what the government is doing with their tax dollars, etc (see: the dude below). I try and explain that the time and place to deal with that is when you vote, not when it’s time to pay up.

          The typical response is “voting is stupid!”.

          It’s like dining and dashing when you have a problem with your meal instead of talking to the restaurant manager. You might have started out in the right, but now you are the jerk in that situation.

      • kosmo @ The Soap Boxers says:

        Well, at least you’ll have a good seat for the show … when the audits eventually happen.

    • TinaBringMeTheAx says:

      My old boss used to have his business pay the propane bill for his heated swimming pool.

      Not sure he ever got caught for that, but both his attorney and CPA went to jail for fraud and he paid a multi-million dollar penalty to Medicaid for fraud a few years ago.

  2. Lethe says:

    Charity deductions of more than 3%? Really? My parents, and a lot of people of their generation, must be audited frequently then. They’ve always made it a point to donate a minimum of 10% to various causes.

    • Marlin says:

      I think this is mostly for “deduct big non-cash contributions can be trouble”; not cash.

      A lot of people try and “donate” a car that is run down a maybe worth $500 but say its worth $X000 since if it was in good condition it would be worth that much. Same with clothes, computers, etc… stuff that has very little value but people try and write off retail prices.

      • Powerlurker says:

        Donating a car was very big loophole for a while. It used to be that people would donate their car and deduct the blue book value, but the IRS changed it so that you can only deduct what it actually ends up selling for at auction.

    • Applekid ‚îÄ‚îÄ‚î¨ Ôªø„Éé( „Çú-„Çú„Éé) says:

      I would imagine that consistency helps. If all of a sudden someone went from 0% contributions to 20% contributions from one year to the next, it would raise a lot of flags.

    • BobOki says:

      I donate older pc and servers (multiple times) a year equaling well over 3% of my income. I have never been audited but then again maybe due to my job title?

    • Nikephoros says:

      A lot of self-employed individuals report very little income thanks to generous business expense deductions, andthen they deduct a lot of charitable contributions personally.

      Essentially, a household which makes 500k a year and donates 10% of it is somewhat believable. A household which makes 18k a year and donates 10% of it is much less believable. That type of situation would get red flagged.

  3. Blueskylaw says:

    “Tax Nuances That Could Get You Audited”

    1). Facial tics
    2). Looking at the floor while making circles with your foot
    3). Pulling up in your Ferrari to IRS headquarters when you listed grocery bagger as your occupation

  4. YouDidWhatNow? says:

    Also, I’d recommend against listing “Fast Eddie” as the tax preparer.

  5. chefboyardee says:

    BD MTH CN GT Y DTD?! THNKS PHL! S SMRT.

    • Applekid ‚îÄ‚îÄ‚î¨ Ôªø„Éé( „Çú-„Çú„Éé) says:

      I fill out all my tax forms with numbers in terms of pi

    • Cor Aquilonis says:

      Which is weird, because usually bad math just gets you a letter with the corrected amount and reason for the correction, along with additional refund check/request for more taxes. Usually I don’t see an audit for calculation errors.

      • Yomiko says:

        That’s an “audit by mail.”

        • Cor Aquilonis says:

          Whatev. Correspondence “audits” are total weaksauce.

          • Yomiko says:

            Agreed. But it’s kinda like spam e-mails. They cost so little than even if half of them work, it brings in a lot of revenue. I know three people who got those letters last year and owed money which they did pay. All three had had their taxes messed up by H&R Block.

    • Fubish says: I don't know anything about it, but it seems to me... says:

      PHIL NO SAY THIS – HE QUOTE ARTICLE.

      THANKS CHEF – U HAVE READING COMPREHENSION TRUBBLE?

  6. Hoss says:

    Seven audit flags and the writer missed the biggest: Earned Income Credits

    • Captain Spock says:

      The EIC is an odd beast…

      My Fiance made 8500 last year before taxes… Poverty level for most people (she has no kids and no real bills though) but she had investment income of over 3150… While that still puts her under the poverty level for income, i guess the government uses this as a sneaky way to say she has assets (leading to the investment income) which makes her not poverty level? Silly Tax code is silly.

      • Cor Aquilonis says:

        EITC is for the working poor. If there are investments earning over $3,000 in income per year, methinks your fiancee’s not the working poor.

        Or, your fiancee could consider investing in such a way that she doesn’t get much income?

      • Hoss says:

        Unless things have changed for her with respect to 2012, she should consider either moving the funds to an IRA or using an investment that builds equity instead of income (like Berkshire Hathaway, etc). That is a HUGE penalty to pay on such a modest investment income. If she uses a tax program, she should try reducing that amount to $2,999 and she can exactly how big that credit would have been.

        Also, check back on those investments to be sure there are no revised 1099s coming — any slight change in the reporting could be a windfall for her

      • Bsamm09 says:

        So she made over $11,650 before taxes which included $3150 of investment income. If she gets a 5% return on her investments, she has over $60k in assets. If it is all in CDs paying 1% she has $315,000 in the bank.

        Don’t think she needs the EIC.

    • tinmanx says:

      I don’t get EITC. My wife’s grandmother got money from this program, but she has no income. How does one earn income tax credit when there is no income? Apparently the program doesn’t take income into account, just how needy you are. So why is it called Earned Income Tax Credit? With a name like that I feel like I qualify for it, but I don’t.

  7. sirwired says:

    Math errors won’t get you audited in the traditional sense. They’ll send you a letter in the mail asking you to justify something. You do so (or admit your mistake), and it’s over. It’s called a “correspondence audit”, and it’s quite different from a nerve-wracking full audit.

  8. partofme says:

    As always, the rule is “don’t be poor”. Oh wait, number four said don’t be rich….

  9. Cliff_Donner says:

    “Make sure your calculations make it look as though you made or owe less than you actually did.”

    Um . . . what?

  10. One-Eyed Jack says:

    Make sure the IRS computers don’t read your $250.00 1099 as $25,000 in income. That just happened to a friend of mine.

    • sirwired says:

      That’s not the fault of the “IRS Computers.” Your friend probably either left out a decimal point, or filed on paper and put in the cents. You are supposed to round to the nearest whole dollar when filling out all forms.

      • Yomiko says:

        Or optical character recognition software is involved and the computer literally didn’t “see” the decimal.

        • One-Eyed Jack says:

          That’s what happened — the computer mis-read the 1099. My friend said if a human had looked at the form it wouldn’t have been flagged.

  11. Frank From Virginia says:

    Or, if you feel the IRS has mistreated you, call 1-800-AuditMe