Some cases are…
Home Office DeductionWe’ve found that many times the tax savings isn’t worth the risk. Especially the depreciation. Once you commit part of your house to business use, you have to pick up any gain on sale from that portion as ordinary income. This in effect reverses the benefit of the deduction. This deduction gets abused by taxpayers who tend to write off a larger portion than what was used, especially if they already sold the house. Also, personal expenses tend to get apportioned incorrectly to the business portion of the house. This is a major red flag
Rental PropertyPeople often make incorrect assumptions regarding the rules associated with rental property. There are dealers, investors, and often classifications, such as active and passive. Passive losses may only be limited to $25,000 and phased out for high income taxpayers. Material participants can deduct their bases in full. Incorrect classifications cause taxpayers to deduct more than they should. Non deductible expenses are found on tax returns, too. The IRS red flags the returns with rental property as returns with potential audit adjustments.
People often do the following incorrect things on their returns pertaining to charity; they…
- …Deduct too high of a value for donated items to charities
- …Deduct amounts greater than actually paid for religious donations
- …Overstate the fair market value of property they donate
- …Deduct amounts that are extremely large in relation to their earnings All items on returns should be explained when they exceed what the IRS would generally expect. Don’t know what they expect on returns? We do! Please consult us if you are being audited or have unusual tax return circumstances. CPA firms are the professionals best suited for these matters.