Your 2016 Tax Return: Possible Audit

In a new Investopedia article, author Amy Fontinelle shares some of the most common deductions on your 2016 tax return that could trigger an audit.

  • Claiming you use your vehicle for 100% business travel. It is unlikely that most drivers would use a personal vehicle for business travel 100% of the time. Keep in mind that commuting to and from work is not considered traveling, and the IRS does not consider that an allowable deduction.
  • Claiming rental property loss deductions when you are not a real estate professional. The IRS is suspicious of passive activities reported by individuals who are not specifically real estate professionals.
  • Earned Income Tax Credit claims in which the filer claims just barely the right amount of money to qualify. This doesn’t mean you shouldn’t claim the Earned Income Tax Credit, just make sure you keep proper documentation and confirm with your CPA that you’re eligible.
  • Business losses from an activity that is considered a hobby. Unless the activity is profitable, you cannot claim the expenses as losses. There are certain requirements the activity must meet to be considered a business. The IRS lists craft sales, photography, yacht charter, airplane charter, entertaining, bowling, and stamp collecting, among other things, as activities that will be held to higher scrutiny.
  • Alimony deductions that don’t match up. The ex-spouse receiving the alimony is responsible for reporting it as income. The individual paying the alimony can claim it as a deduction, and if the two amounts do not match up, an audit could be triggered.

As always, diligent record-keeping is important for tax deduction. This is especially true of any of the deductions that could trigger an audit.

To read more, see the full article from Investopedia.