Thursday, January 21, 2016

Tax Write-Offs That Could Lead to IRS Troubles

Tax write-offs are the most common and legal ways of minimizing your taxes, and while the Internal Revenue Service doesn’t really antagonize taxpayers who take advantage of tax write-offs, there are several write-offs that will make you more prone to audits, and could even lead to trouble down the line.

     Cell phone bill – it’s common practice for business people to write off their cell phone bill as a tax deductible, mainly because it constitutes a large part of the business and can be a big deduction. However, you need to be careful because it’s easy for many personal calls to sneak in and become part of your bill.

     Rent – even if you’re only renting a place, you can still take a home office deduction, but this can be problematic if you aren’t careful with documentation. Depending on whether your landlord is filing taxes as an individual or an unincorporated business, you may need to get them to fill out an IRS form 1099.

     Personal expenses – personal expenses are never tax deductible. Most sensible taxpayers know this, but the problem is that many sensible taxpayers have trouble differentiating whether an expense is purely personal or related to their home office, such as homecare services.

Work-related clothes – the problem usually stems from the fact that work clothing can be tax deductible, but there is a distinction. If the work clothing is not exclusive to your work and can be worn outside the job, then it might not be a good idea to write it off. There’s most likely nothing wrong with writing off a safety vest and a hardhat, but if you write off a new business suit, the IRS might decide to take a closer look.

What to Do if Your Write-Off Gets You Into Trouble with the IRS?

If you’ve committed any of the above examples and the IRS has started knocking on the proverbial door, your safest and most likely best option is to consult with a tax attorney in Minneapolis. A tax lawyer may be able to advise you on how to explain your write-offs, and even if that’s not an option, you’re going to need said lawyer to represent you in tax court.

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