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Money Talks: Tax Hacks - Tips to Avoid an Audit
Posted: 02.20.2013 at 8:58 AM
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Read more: Local, Economy, News, KGBT, Action 4 News, Action 4 Sunrise, Barrington Broadcasting, Rio Grande Valley, Money Talks, Moneytalksnews.Com, Stacy Johnson, Money, Taxes, Tax Hacks, Avoiding an Audit, Filing your Taxes, Taxpayer, Audit Notice, Uncle Sam, IRS, Fake Deductions, Accountant, Tax Refund, Tax Deductions, Small Business, Wall Street Journal, Small Business Expenses, Schedule C, Charitable Contributions, Income, Audit Triggers, Moneytalks, Sunrise
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You don't have to be a rocket scientist to know that Uncle Sam could use a buck or two right now.
And one way of finding it? Tax audits. For obvious reasons, the IRS is never going to tell us exactly how they choose a return for audit. But there are definitely some no-nos you want to avoid.
Example? Wrong preparer. If the IRS believes your accountant is claiming fake deductions, they could audit all of their clients. So beware of bold claims.
"You know anyone who says that I can guarantee you that you're going to get a refund, that's just impossible," said CPA Frank Gutta.
Red flag number 2: Calling something a business and deducting losses on it when it's actually a hobby, thus not eligible for deductions. Want to qualify as a business, sooner or later, you have to make money.
"Generally when you're into the third year, and you still continue to show a loss -- the IRS might consider that to be a hobby," Gutta said.
And speaking of a small business, according to the Wall Street Journal, people who write off their small business expenses on a Schedule C are ten times more likely to get audited than those who incorporate.
Another potential red flag? Taking deductions for things like charitable contributions that are large relative to your income.
Bottom line? You should always take any deduction you're entitled to, red flag or not. But when you're in a gray area that's when you want to make sure you've documented everything. I've got 5 more audit triggers you should watch for, right here at MoneyTalksNews.com. Just search for "Tax Hacks 2013."
Click here to see other stories from "Money Talks"
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