How to Avoid Red Flag IRS Tax Deductions

The federal deadline for tax filling is around the corner, and with a tough economy many americans will itemize their deductions for the first time this year. As some taxpayers will seek the advise of a CPA or Tax preparer, many will do their own using tax software. Done right, there are many itemized deductions that can ensure a bigger refund. However, there are many red flag deductions that could trigger an IRS audit. Here are a few of the common red flags to avoid this year when completing your income tax returns.

Difficulty: Moderate

Instructions

Things You'll Need:

• Tax Software
• Receipts and documentation
• Tax forms

1. 
   Love your pet

   Do not list your pet as a dependent. It may sound crazy, but many will seek some type of tax deduction for a pet. Although there may be some legit tax deductions for pets, as a general rule if it has four legs and no social security number you can not use it as a dependent. No mater how much you love your pet and treat him or her like a child, it will never qualify as a deduction and may trigger an audit.

2. 
   Home Office

   You may list a home office as a deduction, however, there are very specific rules. A home office may only be claimed if it is used EXCLUSIVELY for business purposes. This means that if you if your daughter uses the computer room to post her pictures on MySpace, you cannot use this room as an office. Many tax payers have also tried to write off their entire home as a business office. This is a huge red flag, and you will likely get audited as a result.

3. 
   Car Banner

   Deducting you car may trigger an audit. Increasingly, businesses are putting magnetic signs, window ads, and even full car wraps on their car to promote their business. Some will even promote home based businesses, assuming that the sign will ensure a tax deduction. However, if you put a sign on your car you can be assured that the cost of your sign is deductible; all of your car expenses may not. There are many specific rules for auto deductions when filing your taxes. Make sure you read the rules, complete the appropriate tax forms, and take what you deserve. If not, the auditor may be calling you soon.

4. 
   Donate Blood

   Can I deduct my blood? Believe it or not, many will try to deduct blood and even body organs on their taxes. When you give the ultimate gift of life, it should be done freely from the heart and not from the pocketbook. Saving someone's life with your donation may seem charitable, however, the IRS has very specific guidelines to define charity. Generally, you must donate your entire interest in the property. Therefore you may not take a tax deduction for a pint of blood. However, you may be entitled to a tax deduction if you donate your entire body.

Tips & Warnings

• Use appropriate software such as Turbo Tax
• Seek advise from a tax accountant when needed
• Make sure you file the proper tax forms
• If your deduction seems vague or questionable, it likely is... don't take it
• If you think you need help, get it; else anticipate a problem
• If you cannot prove your deduction don't use it

Resources

• Get Turbo Tax Now
• Tax Help from the experts at HR Block
• Say Goodbye to Taxes

[jennen]

on 2/20/2009 This is a very useful article, number one reminds me of the old days when people really did use their dogs, cats, horses etc... as tax deductions, as my daughter just said, dogs should be a legal deduction these days... good job