Making Finances Simple. Changing Lives.
Report ALL Income
This includes cash earnings, "under-the-table" income, etc. The IRS states that all income is to be reported on your tax return. Not doing so is putting you at risk of fraud, which is punishable with large fines or even jail time. Cash-type businesses (restaurants, contractors, etc.) are more likely to get questioned due to them being easier to hide income.
Earn Less Money
Just seeing if you're paying attention! We don't actually suggest you do this! But it should be known that taxpayers earning $200,000+ are audited four times more than those earning <$200,000 (.8% compared to .2%). Those earning over $1 million are audited even more (4.4% of all returns). In short, the more you make, the more you're scrutinized.
Ensure Your Home Office Is Legit
To be deductible, a home office area must be used exclusively & regularly for business. A valid home office is used routinely for work and can't also have any personal use (i.e. - spare bedroom used for work & guest stays does NOT qualify). Home office spaces must be a separate identifiable space, but it does NOT necessarily need to be marked off by a permanent partition (i.e. - room with four walls and a door).
Don't Round Off Your Figures
Overly rounded numbers are an indication figures are being fabricated. If you had $1,503 in donations, do NOT round down to $1,500. Use actual figures.
Be Careful With Large Business Expenses As Compared To Income
If you report $100,000 in gross business income with $95,000 in expenses, the IRS wonders how you pay your bills if you truly had those expenses. It's not to say you can't have a large amount of expenses in relation to your income, it's just a flag to the IRS that a taxpayer may be "fudging" expenses.
Keep Solid Records With High Charitable Deductions
We've actually seen the IRS send taxpayers letters warning them to be truthful with charitable donations, as their reporting was unusually high in comparison to similar earners. It doesn't mean you shouldn't report all of your donations, just be sure to keep good records so an audit isn't an issue.
Don't Report Losses For Hobbies
If you engage in an activity for the purpose of profit, you have a business which allows you to deduct losses. But if your activity is a hobby, you can only deduct expenses up to the point of income. If you have questions on whether your activity is a business or a hobby, contact us and we'll be happy to help!
In the end, it pays to keep good records. Good record-keepers don't need to fear the IRS as it's simply a matter of providing documentation to support information reported!