Income Tax Deductions that May Trigger an Audit

Some income tax deductions that are submitted to the Internal Revenue Service can trigger an audit. Here is a brief overview of a few of the most common red flag items.

Home Office Deductions

Many people include anything from fax machines to kitchen cabinets in their home office deductions. In order to accurately estimate the correct amount of home usage, have your home office space measured by a contractor. Determine what the square footage of your space is, when compared to the overall size of your home. This will enable you to claim utility, insurance and other infrastructure costs for your home office accurately.

Travel Expenses

Be sure you can prove that the travel to Las Vegas, London or Hong Kong was for legitimate business reasons. The easiest way to keep track of everything is to keep your receipts for hotels, meals and entertainment in an envelope with the business address and logo of your hotel on it. Provide brief meeting notes, such as who attended and the general subject of discussion, time the meeting started and ended, with the receipts for particular days of the trip. You can claim 50 percent of the costs of meals for yourself and business guests.

Cell Phone and Internet Costs

Get a dedicated cell phone or run a landline to your home for business purposes only. Keep a business phone log of all the long-distance and local calls you make in order to substantiate your phone expenses. Use a laptop with a dedicated Internet connection for business purposes. Estimate and log your monthly Internet hours if you have your Internet connection networked to other computers in your house.

Health Insurance Costs

You will not be able to claim health insurance costs for an individual policy if you are eligible for coverage under a spouse's employer-provided health insurance program. Keep accurate records if you need to provide your own health insurance coverage. Also, be sure that your accountant has a copy of everything related to the policy.

Vehicle Costs

Vehicle costs are among the most common triggers for audits. In order to avoid any problems, have a dedicated vehicle for your business use. If you must use your vehicle for both personal and business driving, keep an accurate business driving log. This log should show when and where business travel took place, payment for the gas you used, odometer readings and when maintenance was done on the vehicle. Also, keep all receipts.

Capital Expenditures on Your Home

Do not attempt to claim capital expenditures on your home as part of your business income tax deductions. These include a new roof, new furnace, plumbing, electrical and other upgrades that are required for insurance purposes. These expenditures add value to the home and keep it habitable, so they are not considered deductible for business purposes.

Personal Expenses

If you need special clothing for your job, be prepared to show the specific costs of this clothing, along with its upkeep. For example, if you work in laboratory and need to have your clothing decontaminated, track and itemize those costs very clearly to avoid an audit.

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