Red Flags for Tax Auditors

No one wants to see an Internal Revenue Service (IRS) auditor show up at their door. But in 2018, the IRS budget is roughly $1 billion less than it was 8 years ago, down from $12.1 billion in 2010 to $11.2 billion. And even though the number of audits has dropped 40 percent from 2010 to 2017, an IRS tax audit remains a fear for many individuals.[1]

The IRS can’t audit every American’s federal tax return, so it relies on guidelines to select the ones most deserving of its attention. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Here are six flags that could make your tax return ripe for an IRS audit.

  1. The chance of an audit rises with income. According to the IRS, less than 1% of all individual taxpayer returns are audited. However, the percent of audits rises to over 1.5% for those with incomes between $200,000 and $1 million who attach Schedule C and is over 4% for those making more than $1 million annually.[2]
  2. If this year’s 1040 deviates greatly from last year’s, that could raise a red flag. The IRS has a scoring system called the Discriminant Information Function (DIF) that is based on the deduction, credit, and exemption norms for taxpayers in each of the income brackets. The agency does not disclose its formula for identifying aberrations that trigger an audit, but it helps if your return data is within the range of other taxpayers with similar incomes.[3]
  3. If your business passes for a hobby, you could be scrutinized. Taxpayers who repeatedly report yearly business losses on Schedule C increase their audit risk. In order for the IRS not to consider your business as a hobby, it typically needs to have earned a profit in three of the last five years.[2]
  4. Not fully reporting your income boosts the chances of an audit. The IRS receives copies of all of your 1099 and W-2 forms. Individuals who overlook reported income are easily identified and may provoke greater scrutiny.[2]
  5. Alimony discrepancies between exes can raise eyebrows. When divorced spouses prepare individual tax returns, the IRS compares the separate submissions to identify instances where alimony payments are reported on one return, but alimony income goes unreported on the other party’s return.[2] Keep in mind that The Tax Cuts and Jobs Act repealed the alimony deduction after December 31, 2018.
  6. If you claim rental losses, you had better be a real estate professional. Passive loss rules prevent deductions of losses on rental real estate, except in the event when you are actively participating in a property’s management as a developer, broker, or landlord (the deduction is limited to $25,000 and begins to phase out when adjusted gross income exceeds $100,000) – or devoting more than 50% of your working hours to this activity. This is a deduction to which the IRS pays keen attention.[2]

“Don’t spend time beating on a wall, hoping to transform it into a door.”

– Coco Chanel


Recipe of the Week

Red and White Roasted Potatoes

Serves 8

Ingredients:

  • 3 lbs. small, similar-sized red and white potatoes
  • ¼ cup good olive oil (can use avocado or a vegetable oil)
  • 1 to 2 tsp. pink Himalayan salt, to taste
  • 1 to 2 tsp. freshly ground black pepper, to taste
  • 2 to 4 Tbsp. garlic, minced (6 to 8 cloves)
  • 2 Tbsp. fresh parsley, minced

Directions:

  1. Set the oven to 400°F. Cut the potatoes in half or quarters, keeping them the same size.
  2. Toss them in a stainless-steel bowl with the olive oil, salt, pepper, and garlic until the potatoes are evenly coated.
  3. Scatter the potatoes on a sheet pan in one layer, making sure the potatoes are not touching each other.
  4. Roast in the oven for 45 minutes to 1 hour or until browned and crisp. Remove the potatoes from the oven a few times to toss so that they brown evenly.
  5. Once the potatoes are done roasting, season more, if needed, then sprinkle with parsley and serve hot.

Recipe adapted from Food Network[4]


Tax Tips

Like, Hashtag, and Follow Tax Tips on Social Media

Social media is a great way to get tax tips and helpful news from the IRS. The agency uses a variety of social media platforms to share tips and information with taxpayers:

  • YouTube: Get video tax tips in English, Spanish, and American Sign Language.
  • Instagram: Follow the official IRS Instagram account @IRSNews for the latest tax scam information to help keep your personal data secure.
  • Facebook: The IRS posts useful news and information for taxpayers and tax return preparers.
  • Twitter: Follow @IRSnews for tax-related announcements and tips. @IRStaxpros tweets news and guidance for tax professionals. Tweets from @IRSenEspanol have the latest tax information in Spanish. @IRSTaxSecurity tweets tax scam alerts.
  • LinkedIn: The IRS shares agency updates and job opportunities.

You can also access IRS information and your tax status with the IRS app, IRS2Go. Use the app to check your refund status, pay taxes, and find free tax help.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[5]


Golf Tip

Don’t Let Your Lie Angles Lie to You

If you haven’t checked the lie angle on your clubs, your golf game may be suffering. The lie angle is the angle of the shaft relative to the floor, when the bottom of the club is flat on the ground.

If you’re a taller player with an upright swing, a club with a steeper angle is for you. A flatter or lower angle is always a great choice for players who are shorter or who have problems with hooking the ball. It’s important to remember that normal use can cause the lie angle of a club to change, which will also make your swings less dependable.

One way to check is by looking at where on the ball you’re hitting. If you notice you’re hitting the ball close to the toe, your lie angle is probably too flat. If you strike closer to the heel, the angle might be too steep, and your club, too upright.

Adjusting the lie angle on a club is something a club fitter or pro shop can handle for you.

Tip adapted from Golf Tips Magazine[6]


Healthy Lifestyle

Sweet Tips to Reduce Sugar Intake

Consuming excess sugar can pose all sorts of health problems, including weight gain, insulin resistance, diabetes, inflammation – the list goes on and on. If you’re eating a balanced diet, then food items with added sugar should be consumed sparingly because if you’re eating an adequate, well-balanced diet, you should be getting enough carbohydrates (including sugar) from your daily intake. If you’d like to reduce your sugar intake, here are some tips:
  1. Skip low-fat options: Low-fat snacks and yogurt products may be lower in fat, but they might also be higher in added sugar. If this is the case, choose full-fat versions with lower sugar, instead. You might feel fuller longer, too.
  2. Eat whole foods: Eating a diet that is mostly fruits, vegetable, meats, nuts, and grains in their most natural state with minimal processing will ensure that you’re getting less added sugar and more of the good stuff – like the vitamins, minerals, and a better balance of fat, carbohydrates, and protein.
  3. Saucy, but sweet: Condiments like ketchup, barbecue sauce, hoisin, and sweet chili sauces have added sugar. Herbs, spices, mustard, mayonnaise, and vinegar-based dressings with olive or avocado oil are great replacements.

Tip adapted from Healthline[7]


Green Living

Save Paper, Print Less, Scan, and Store More

It’s no surprise: it’s a digital world. But are you truly “digital”? It is a definitely a paradigm shift to be “paperless,” but it’s a reality for many and a wonderful possibility for the rest. Instead of supplying paper, we need trees to produce oxygen and shade, provide habitats for animals, and reduce greenhouse gases. So, why not go digital using some of these tips?

  • Scan when you can. Most printers have a scanning bed, which makes it easy to scan and keep a digital file.
  • The cloud. Cloud storage apps like Dropbox, iCloud, and Google Drive will hold your data for you. It’s not really a cloud; it just means it’s stored over the internet in logical pools spanning multiple servers, possibly in multiple locations.
  • Storage devices. Thumb drives and external hard drives will store documents, images, photos, and videos, and you have something tangible (not a “cloud”) to keep.
  • Paper and fonts. When you do need to print, consider this: choosing a font like Century Gothic uses less ink. Also, check your paper weight. You may be able to use thinner paper, which can help save money and trees.

Tip adapted from Laserfiche[8]


[1] www.washingtonpost.com/business/economy/your-chances-of-an-irs-audit-are-way-down-but-keep-it-on-the-up-andup/ 2018/04/06/cb6c5794-3779-11e8-9c0a-85d477d9a226_story.html?utm_term=.77485a954004
[2] www.kiplinger.com/slideshow/taxes/T056-S001-red-flags-for-irs-auditors/index.html
[3] www.cpapracticeadvisor.com/news/12418908/how-to-prepare-your-clients-for-an-irs-tax-audit
[4] www.foodnetwork.com/recipes/ina-garten/garlic-roasted-potatoes-recipe-1913067
[5] www.irs.gov/newsroom/taxpayers-can-now-instantly-get-tax-info-on-instagram
[6] www.golftipsmag.com/instruction/quick-tips/posture-perfection/
[7] www.healthline.com/nutrition/14-ways-to-eat-less-sugar
[8] www.laserfiche.com/ecmblog/9-sneaky-ways-to-get-employees-to-print-less/