Taxes, Red Flags You Should Avoid

Red flag warning
With less than two months between now and the due date for filing taxes most people are at least starting to get their paperwork together to compile receipts, add up expenses, and determine which deductions they will be able to take this year. And although only 0.7% of all individual returns were audited last year there are always things you should try to avoid in your return that increase your odds of an audit.

Here are 6 tax return red flags:

  • Unreported Income - The extra money you make on the weekends driving for Uber or Lyft is great but you will get a 1099 and you need to report those earnings and pay taxes. With most 1099 work you should be paying estimated taxes throughout the year to avoid penalties for late payments. If your reported earnings don’t match what the IRS has on file in terms of W2s and 1099s, you could be in for an audit. Always check these documents and ask for corrections if they aren’t accurate.

  • Undocumented Donations - If you have noncash donations of over $500 you need to file Form 8283 and you are going to need receipts. You should also know that the IRS has records of the average charitable contributions for all income levels so if you are very generous you should be sure to keep good records.

  • Home Office - If you plan to deduct a portion of your mortgage or rent as a home office deduction, you will have to be able prove that space is only used for business, which means you can’t claim your kitchen table or guest bedroom as an office.

  • Vehicles - When depreciating a vehicle you must declare how much of the vehicle’s use is business and how much is personal. Unless your vehicle really is solely used for business you shouldn’t try to claim 100%. Also be aware that if you claim the IRS mileage allowance ($0.54 for 2016 and 53.5 cents for 2017) you can’t double dip and also write off actual expenses for maintenance and insurance.

  • Business Loss - If you claim large net losses on Schedule C you could expect extra scrutiny on your returns, especially if your business deals with a lot of cash customers. If you report losses too often your business could actually be a hobby and you can’t deduct losses from a hobby.

  • Foreign Bank Accounts - If you have money stashed outside the United States and the total value of those assets is over $10,000 you need to electronically file FinCen Form 114 before April 15 to report those accounts or risk being penalized.

It is always a good idea to seek professional help with your tax filing. Finance Source can help you find a great tax advisor and personal loans if you owe money or perhaps a new car loan if you are getting a refund and want to splurge on some new wheels.