August 19, 2021

The IRS has the ability to audit an individual’s tax return to ensure that there is not any fraudulent activity occurring. A general rule is that the IRS can go back at least three years for an audit; however, if there are major errors on your return, the agency does have the ability to go back another few years – but typically no more than the last six years.

If you are being audited, the most important thing to remember is that you will need to have solid documentation to back up any claims you make about your overall financial picture, particularly your deductions.

Here is a list of additional items that could get your return flagged by the IRS:

  • Claiming a home office deduction. Taxpayers are required to have a dedicated space in their home that is strictly used only for their business in order to take advantage of this type of deduction. This deduction allows an individual to prorate some of their household expenses such as utility bills, homeowner’s association fees and more on a fractional basis. When claiming this deduction, an individual will need to figure out how much square footage is dedicated to their business in their home versus how much square footage they have in their home at large.
  • Deducting unreimbursed business expenses. Unreimbursed business expenses are only deductible beyond 2% of your adjusted gross income. Most workers are also reimbursed by their employers for most out of pocket expenses. Expenses such as license fees, subscriptions to trade journals, tools and supplies, and specialty uniforms are deductible expenses. Non-allowable deductions such as commuting costs and everyday work clothes should not be placed on your tax return and could trigger an audit with the IRS. This could end up being very costly for an individual if the IRS rejects your deductions.
  • Claiming 100% business use of a vehicle. Taxpayers should consider keeping a paper log on their dashboard and writing down every mile that is used for work, the date and what it was for. If you do want to claim all the costs for a business expense, be sure you have another vehicle too.
  • Hiring a preparer who falsifies your return without your knowledge. Taxpayers should be cautious when hiring a tax preparer. There are many incompetent and unethical tax preparers who could end up costing you more than you expected. If the IRS sees a pattern of problems on your returns coming from one preparer, they may flag the entire operation’s returns for that year or the past several years. If an egregious error is found on your return, you will most likely be held accountable for it.
  • Taking an alimony deduction. Alimony is paid under divorce agreements and after the 2018 tax year, is no longer deductible. In addition, ex-spouses get taxed on alimony received under post-2018 divorce agreements. Individuals that attempt to deduct their alimony expense will likely trigger an audit with the IRS if there is a mismatch in reporting by the payer and the recipient of alimony on each of their tax returns

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.