Tax hacks 2019: 6 missteps that will get you audited

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Nobody wants an IRS tax agent knocking at the door and asking for a shoebox full of receipts. Unfortunately, there’s no surefire way to avoid an audit of your tax returns.

However, you can sharply reduce the odds of an IRS inquiry by avoiding some common mistakes when filing your taxes. Here are seven that should be on your radar.

Hiring the wrong tax preparer

This mistake might occur before you even get your name on the tax return. Select a tax preparer who is incompetent or unethical, and he or she could spell big trouble for you.

If the IRS audits one of the returns the tax preparer filed and finds significant problems, the agency might decide to audit all of the returns that person prepared for the year, or for the past several years.

Don’t make this mistake. Read our advice on how to select the best tax pro.

Saying your hobby is a business

Let’s say you breed and sell dogs, or sell blankets on Etsy, or resell garage sale purchases on eBay. At the end of the year, you realize expenses exceeded what you made and decide to deduct a tax loss from your “business.”

However, if you do that for several years, the IRS is going to get suspicious. A business is something that makes money. Generally, if you haven’t made money in at least three of the past five years, what you have might actually be a hobby.

The IRS doesn’t allow business deductions for hobbies.

Taking questionable deductions or credits

Experts generally agree that claiming excessive charitable contributions and claiming a home office are two of the deductions most likely to raise red flags with the IRS.

If you donate a large percentage of your income to charity, be sure to keep careful records. Too many contributions relative to your income can be a problem. So, think twice about inflating the value of those items you dropped off at the thrift store.

As for the home office, take the deduction to which you’re entitled, but be ready to defend it if needed. The most important thing to remember is that you can only deduct a home office if you use that space primarily and exclusively for business.

Under the category of credits, abusing the Earned Income Tax Credit (EITC) is likely to get you in trouble, according to experts. The EITC is a benefit designed for low-to moderate-income working people, particularly those with children.

Back in 2013, the IRS came under fire for not taking enough action to curtail improperly awarded Earned Income Tax Credits. In a statement reported by multiple news outlets, the agency fired back by saying EITC claims were twice as likely to be audited as other returns. If you claim the EITC, consider yourself warned.

Claiming a loss from a rental

When housing prices were depressed, some people converted homes into rentals rather than sell them. Those who found that the rent they received didn’t cover their mortgage and taxes might have assumed they were entitled to take a deduction for the losses.

Not so fast. You must either be an active participant in the management of your rental or a real estate professional to do that. The IRS has a long and confusing page with the details, but Nolo.com has a much clearer explanation.

Make sure you’re eligible to deduct the losses before doing so. Also check out “10 Keys to Finding and Owning the Perfect Rental Property.”

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