Deductions That Can Get You Audited

You may have wondered what the IRS looks out for when identifying a tax return that is due for an audit. There are many different areas the IRS will examine to determine if a taxpayer is telling the truth or not. Below we will list some of the less talked about issues the IRS will look out for when considering an investigation.

Claiming Large Charitable Deductions

The IRS has an average that it uses to compare your claimed income to the size of your charitable deduction. If your deduction far exceeds the average that the IRS is used to getting for your income level, then you may have a problem. Since many people submit charitable deductions it is easy for the IRS to compile this information and determine where everyone should fall for every type of income level. It is important that you do not try and trick the IRS into believing you have given more than you actually have.

Home Office Deduction

The infamous home office deduction, it seems like the perfect solution to all your business needs. This may be true, but a home office deduction comes with many stipulations. Since it is prone to fraud, the IRS is keen on making sure people who do not qualify are caught and penalized. To take the home office deduction, you must use the space in your home exclusively for your business, even during after hours. This means that there cannot be a bed, television and things of this nature inside the room.

If you are an employee of a company and you claim a home office deduction you must prove that you work from home for the convenience of your employer. If your employer is providing you an office in the first place, it can be hard to prove that it is in fact a convenience.

Travel & Entertainment Expenses

Travel and entertainment expenses that are deducted are always under the close eye of the IRS. You must in all circumstances, show a receipt, bill or some proof of purchase for any expense over $75.

In order to take a deduction for a meal or entertainment expense you must be able to prove that the meal is directly related to conducting some form of business during or right after the meal in question. This leaves it up to interpretation and can be hard to prove since the IRS was not actually at the table when the meal took place. It may be wise to not take such a deduction if you think you would have trouble proving it to the IRS.

Deducting Losses As A Sole Proprietor

It is important that you not take deductions on losses as a sole proprietor if you are in fact only conducting a hobby and not a business. There is a very definite line between a hobby and a business, and the IRS knows when you are lying. If you continue to take losses year after year and it does not seem like you are trying to make a profit, this can be a big red flag.

There are many other ways that the IRS will determine whether you are conducting a business or a hobby. Over the years they have become increasingly efficient at spotting the difference, it would be wise not to try and take advantage of business deductions if you are not conducting a business.

Vehicle Expense Deductions

Deducting vehicle expenses on your tax return has become increasingly difficult over the years. Since it has become a target for fraud, the restrictions on what can and cannot be deducted are much more restrictive.

Some of the restrictions include keeping a mileage log of where you travel for business. Without this log, the IRS will not allow you to take the business vehicle deduction.

Putting signs on your car is another misconception people often have when deducting their vehicle as a business expense. Just because you add advertising to the outside of your car does not mean you automatically have a business vehicle.

You must be careful when taking any of these deductions. Speaking to a trained tax professional before sending in your return is always recommended.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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