We’re currently in the midst of tax season, and while many have already filed, others are still holding out until the April deadline. If you haven’t submitted your taxes yet, it’s important to understand what the IRS looks for in a submission. If you provide information which may seem even a little suspect, be warned that an audit may be coming your way.
Here are three red flags that the IRS looks for every year:
Home Office Deduction
Many great businesses have started from the home. Whether it was Bill Gates or Jeff Bezos, there are countless success stories that have their start in a home office. With that said, however, the IRS has a lot of stringent rules and regulations around what exactly constitutes as a “home office.” By law, if you want to take full advantage of the tax deduction, you must understand that by law, a home office constitutes as a space that is only used for business. Before filing, you should know exactly how much of your home’s square footage is appropriated as office space, after which you can claim a fraction of costs like utility bills, HOA fees, and more as business write offs.
When giving gifts in the moment, it can be hard to think of the potential IRS audit implications. You are contributing out of your own good will, so what could go wrong, right? Well, if you don’t properly document your donations, no matter how generous you may be feeling, it can cost you during tax time. Claiming a deduction due to charity is a multi-step process that needs to have a paper trail. Without one, the federal government may feel suspicious about any write offs you may be applying for. When in doubt, write a check over cash. Checks are much harder to falsify, and immediately give you accurate documentation of your good deed.
If you have been dealing in digital currency like Bitcoin or Etherium, be wary that you may have a tax-time surprise coming your way. Because blockchain is relatively new technology, many investors saw it as a great way to avoid taxes. In previous years, some may have been able to get away with something like this, but these days, the IRS has wised up. Failing to report income from crypto currencies can lead to a fine of up to $250,000 plus prison time, in some cases. The government has made it a priority to identify and flag suspicious accounts, and if you’ve been relying on your Bitcoin wallet for your business lately, it’s going to show. The best thing you can do is be up front and honest with your gains.
We understand that tax season brings many unanswered questions along with it. If you are ready to work with a professional who understands this realm and can protect your best interests, we’d love to get in touch. For more information on other financial topics, check out our blog.