[CAUT] Taxes (was "PTG dues"

[Israel Stein]

On 1/8/2008 Carl Root wrote:

>I have been audited.  They don't tell you why, but I know that wasn't  
>the reason.  Trust me on this.

>> One "red flag" that is cited over and over again is claiming a  
>> "home office" deduction (which I have never done).

>I have from day one.  I cleaned up my office and shop in preparation  
>for the audit, but she didn't even want to look at them.. "Of course  
>you have an office and a shop", she said.

Unfortunately, I can't get away with it. My house is too small to devote any room exclusively to office or shop. 

> Another is claiming more deductions than is reasonable based on  
> your total income.

>I'm not sure there's a connection between "reasonable"  and income.   
>For example, if you put an obscene amount of miles on your car but  
>aren't particularly efficient in your scheduling, should they  
>penalize you?

No - but it might make them want to take a look at your documentation. If you drive a total of 15,000 miles in a year and 14,375 of them are business miles and you don't have a second car - they may just want to take a look at your records and make you prove that that's what happened...  An audit is not a penalty. It could either be routine - a number of returns are selected at random every year. Or it could be set off by a "red flag" - something is unusual about the return. It could be perfectly legitimate - as per your example above - but they want to make sure that it is.

But your example is not really what I had in mind. If your total income is 60,000 and you claim $25,000 in cash charitable contributions - you can bet your life that this will set off a red flag and they will want to see your documentation. 

>It's all about documentation.  It's also much less about proving  
>expenses, and more about accounting for every dollar you've deposited  
>into your bank account.

That's once you get audited. But tax professionals will tell you over and over again - there are "red flags" that will make an audit more likely. And two of the most often cited red flags are the examples I gave. If you wish, I can post the entire list of this year's "red flags" from Turbo Tax...

Israel Stein