3 Tax Deductions That Could Lead to an Audit

Q

---Home office deductions:

---Charitable contributions-

---Medical expenses deduction:

✍: Guest

A

---Home office deductions:

Home office deductions are a legitimate way to save money if you work from your home -- if you qualify and follow the rules. But if the IRS smells anything fishy in your deduction(s), it may audit you. (Fortunately, a seemingly fishy deduction is in fact proven legitimate, in which case there's a happy ending to the audit.) Here are some of the rules: For starters, the office in your home must be used exclusively for business. If it's in a room that you also use as a home gym, or where you hang out and watch TV in the evenings, then it doesn't qualify. The space must also be your principal place of business, or where you meet regularly with customers. If you're a salaried employee and you spend only a handful of hours per week working from home, that's not good enough. (If you have a part-time side business and work for that exclusively from a home office, that could qualify.) To claim a home-office deduction, you'll need to figure out what percentage of your home your office takes up. Once you have that, you can deduct that percent of utilities such as electricity and heat, as well as mortgage interest, property taxes, home insurance, security expenses, homeowner association fees, home repairs, and maintenance expenses. You can also deduct the full cost of a dedicated phone line into the office if you have one, and the full cost of work done on that room, such as painting it. If you have a car that you use for business, you may be able to deduct some or much of your expenses related to it.

As long as your deductions seem reasonable and in line with those taken by similar taxpayers, then the IRS may not question much. Regardless, be ready to substantiate any claims, in case you need to.

---Charitable contributions-

Charitable contributions receive particular scrutiny from the IRS. The IRS generally looks for oddities, like large charitable contributions relative to your income. If you made $50,000 last year, then you'll probably have a hard time explaining how you donated $49,000.

Size isn't the only factor in whether or not a charitable gift triggers an audit. Non-cash donations, also known as "in-kind" donations, attract attention because it's easy to inflate the value of a non-cash donation like used clothing or cars. If your non-cash donations exceed $500, then you'll need to fill out a Form 8283. Donations in excess of $5,000 require additional disclosure on the Form 8283, as well as an appraisal by someone the IRS deems as a "qualified appraiser," with a few exceptions. You can avoid the most common mistakes by making sure that your donations are actually deductible (the IRS maintains a list of charitable organizations that qualify) and that you have receipt of your charitable donations when you file your taxes.

---Medical expenses deduction:

In order to even claim a deduction, you need to spend more than 10% of your adjusted gross income on unreimbursed medical expenses. In other words, if you earn $100,000, you'll need to spend more than $10,000, or else you're ineligible. As you might imagine, this is fairly uncommon. According to IRS data, only about 12% of taxpayers with AGI of between $50,000 and $100,000 claimed a medical deduction, and this was for a tax year in which the threshold for claiming was still 7.5% of AGI (it still is, if you're over 65). And the average deduction claimed by this income group was $7,532. Now that the threshold has been raised, it's safe to assume that even fewer taxpayers qualify for a medical expense deduction.

2020-07-03, 1650🔥, 2💬