According to the IRS over 145 million tax returns are filed each year. For most people, preparing their own tax form can be complicated, and unfortunately one misstep could cost them hundreds of dollars in potential return money, or could even lead to possible fines or jail time. The good news is that there are ways to ensure these costly and time-consuming mistakes are avoided.
To prevent costly consequences, John Gregory, tax practitioner and founder of 1040Return.com, offers the 10 biggest scams and mistakes that the IRS see as a red flag:
1. People who have stock transactions and have a small loss or gain will neglect to file their losses or gains on their tax returns. However, the IRS will receive the 1098 from the brokerage firm and the 1098 only show the sales of the stock transaction and not the cost of the stocks. So, the IRS will send a notice to the client saying they under reported theirincome because of the stock transactions. This will lead to a large tax bill plus penalty and interest.
2. People who inflate their charitable contributions beyond what could be expected of a reasonable individual in their income range.
3. Inflated Schedule A that almost exceeds their AGI. When a client writes off 90 percent of their income on their Schedule A the IRS will wonder how you ever lived off the remaining amount.
4. Married couples who each file a tax return and file as head of household and then they both claim the same child.
5. Bogus Schedule C claiming the Earned Income Credit (EIC) and have no expenses.
6. Watch out for tax preparers who do not sign off as the paid preparer on your tax return. Some of these so-called tax preparers will not charge you to prepare the federal Return. Instead, they tell the client that they will electronically file their State Return and have the refund deposited in their account for their fee of preparing the Federal Return. The client is unaware that the State Refund can be for thousands of dollars.
7. Failure to report gambling winnings when they receive 1099G. If you
receive a 1099G for gambling winnings you need to report the winnings. All of your gambling losses can be deducted on your Schedule A up to the amount
of your winnings.
8. Claiming your spouse as your dependent.
9. People who use the home office deductions when they are not self- employed. This will invite you into an audit every time.
10. Meals and travel and entertainment expense. This is a hot button with the IRS. The IRS looks at your occupation to see if your expenses are in line with your profession. No, you cannot take your spouse on a business trip and write your spouse expenses off.
1040Return.com provides tax software resources, information, tools, and more. It has been designed to help the self-employed and small business owner. They have also conducted research to calculate the average net profit for all 318 industries, based off of average gross sales. This free information helps small business owners maintain accurate records and provides an idea of IRS expectations. They also provide audit protection insurance that helps if there is ever an audit. For more information on 1040Return.com visit the site at: www.1040Return.com.