The top 5 tips to avoid a tax audit; Know how to report accurately with these 5 tips
4:15 PM, Jan 31, 2014
9:39 AM, Feb 3, 2014
WEST PALM BEACH, Fla. - It doesn't matter if you file your taxes with a professional tax preparation service or electronically file yourself, if you don't file correctly an audit could be on the way.
Tom Grochowski of Star Tax Recovery said, "It's a very serious thing, people are afraid of the IRS."
Grochowski has more than 10 years of professional tax filing experience and helped NewsChannel 5 create the top 5 tips to avoid an audit.
#1 Don't underreport
Leaving earnings off here or there could spell trouble. "They'll get a notice saying all right we see some income on our end that we don't see on your end, we need to take a look at that," said Grochowski.
He says he sometimes sees this in filings with a lot of brokerage transactions.
#2 Don't report large deductions based on your income
Grochowski gives this example: If your household has a combined income of $45,000 but you report $25,000 in Schedule A itemized deductions, that's going to throw up a red flag.
Grochowski said he sometimes sees people explain the gap with large amounts of home mortgage interest or large charitable contributions.
"Doesn't pass the smell test on the IRS level and it may lead for your return to be subject for review," said Grochowski.
#3 Legitimize your home office deduction
Make sure you really use your home for an office. Grochowski gives the example of a hairdresser renting a chair at a local salon then claiming a home office deduction. That's a corner cut that could lead to an audit.
#4 Be careful of small business losses for several years
Be prepared to answer to the IRS if you show big losses for 3 years or more. Unfortunately, those trying to evade taxes might label something as a small business simply as a shelter to defer taxes.
#5 Be thorough with reporting foreign bank accounts
Grochowski says the IRS is looking at this much closer this tax season than in previous years.
Purposely sheltering money in a foreign account carries big penalties. "Penalties up to one hundred thousand dollars. They're taking it very seriously," said Grochowski.