![]() ![]() Your home officeĪ big lifestyle change since the pandemic is that many more people are working from home. The proof you need: Keep a detailed record of your mileage, and calendar entries specifying your starting and ending addresses, and business purpose for every time you use the car for business. Not OK: You use your business vehicle to run errands, get your nails done, or pick your kid up from soccer practice and write it off. For example, if you’re a florist, you use your business van to deliver flowers to customers. But if you’re also using it for personal matters, account for it on your taxes.Īcceptable: The car is used solely for delivering good or offering services to your clients. You may use your car for some parts of your business. The proof you need: Keep all receipts, and record the dates and times, description of the expense, the business purpose, and relationship to those you hosted (paid for). Not OK: Deducting multiple lavish steak dinners with rare champagne – with the company of your friends or family (not business related), and then trying to deduct it as expenses. In 2023, the deduction is limited to 50%. Rules for claiming this are strict, so it’s a smart idea to understand them before attempting to exploit the system.Īcceptable: Deducting 100% (through 2022) of the cost of a reasonably priced meal at a restaurant where you entertained potential or current clients while discussing business. Yet, some people in this scenario fudge the truth – and the IRS catches on. For example, this may include meal expenses for potential or existing clients. If you’re an independent contractor, you can take many deductions if the expenses are ordinary and necessary to your line of work. The proof you need: Get your large noncash donation worth $5,000 or more appraised, file Form 8283 for any donation over $500, and make sure you keep all related receipts and documentation to support your charitable donation. Not OK: Fibbing charitable deductions or even giving to charity and not getting proper documentation for your charitable donations. ![]() The IRS may flag your return if you’re giving away large charitable donations when you don’t have much income.Īcceptable: You gave a generous donation to a meaningful charity of your choice … and then suddenly lost your job, making your income lower than expected. Report all taxable income you receive, even if you don’t receive a 1099 or other document. If you think it is wrong, inform the sender and ask them to file a corrected W-2 or 1099 with the IRS. The proof you need: Compare the W-2 or 1099 you receive against your own records. Not OK: Estimating or fudging how much you’ve made, even if you’re a freelancer. You can’t lie on your federal income taxes, because both you and the IRS received your W- forms, for both full-time employees and self-employed individuals.Īcceptable: Reporting all income received. We’ve listed the top audit triggers and reasons the IRS will send you correspondence, how to know if you’re in the wrong, and what proof you’ll need to ward off a full-blown audit, penalties, and frankly, unnecessary frustration: 1. Rest at ease knowing there are ways to avoid audits altogether. In the latter case, you can appeal or enter into a mediation with the IRS. The IRS proposes a change, and while you understand their proposal, you don’t agree.The IRS proposes one or more changes and you agree to it and/or pay more taxes, interest, or a penalty.The IRS decides all is well and the return stays the same.If the IRS does see a significant error, they may conduct an audit, which can happen either by mail or in person, with three possible outcomes: ![]()
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