Yes, tax season is snow storms, turkey dinner and college bowl games away, but having an eye on the tax prize in July can yield benefits in the winter months ahead.
Some facts to consider, while the audit rate at 0.59%, certain actions can increase that chance of getting the governments all seeing eye pointed at your return.
- Higher than average deductions are a warning sign. Considering that people are now considering clustering charitable giving in order to beat the standard deduction, it almost feels like donations amped up to get past the standard deduction will equal increased scrutiny. Further, donating more that $500 of non-cash items means having to fill out an extra form, which is more work for the tax payer and makes the tax return more expensive to prepare in most cases. Some donations will require appraisals (which is not new). This year the amount of charitable giving claimed on tax returns fell substantially as the standard deduction was doubled.
- Small businesses with over $100,000 in gross income with large write offs for meals, transportation, travel and 100% use of a vehicle for business purposes are likely targets for audits to support the claims.
Businesses that show losses for a number of years, especially for farm, hobby like businesses and real estate ventures are perpetual targets of increased review. Farm operations should do everything possible to show a tax return once every five years with a positive net income or be prepared to show how the farm operation is truly its own enterprise and not just a tax shelter for off farm income. Those with letters behind their names at work should take note, whether those letters are J.D, M.D, CFP C.P.A, or D.O.