Friday, January 7, 2011

Audit Risk

With January here, we should all be preparing to file our taxes.  Dawn Pettiglio is a CPA who helps me file my taxes electronically each year.  I asked her to share some tax tips with us.  Thank you, Dawn, for being my first guest and for sharing your knowledge!

The IRS audits only about 1% of all individual tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for an audit. And of course, the only reason filers should worry about an audit is if they are cheating on their taxes.

Audit Risks
  1. Failure to report all your income.
  2. Claiming the home buyer credit – 100% of these returns are reviewed.
  3. Large charitable deductions compared to your income, especially if they are non-cash contributions
  4. Home office deduction
  5. Business meals and entertainment
  6. Claiming 100% business use of a vehicle
  7. Consistent losses on a businesses
  8. Your business has a high use of cash
  9. Foreign bank account
  10. Numerous large cash transactions (near or over $10,000)
  11. Math errors
  12. Deductions are larger than average taxpayers
Dawn Pettiglio, CPA, from Bradford, New Hampshire.