Tax Tips: Pros and Cons of Some Available Tax Deductions January 11
We all want to pay the bare minimum in taxes when April rolls around, and those who want to take as many deductions as legally possible often start thinking ahead of ways to deduct additional business expenses. But not all of these tax deductions are necessarily a good idea, even if they can save you a few dollars each year. The reason why is that they may also create a situation that puts you at greater risk for intense scrutiny from the IRS – including a dreaded tax audit.
The IRS is not trying to single you out unfairly, mind you, but it is a fact that some types of tax deductions are abused more than others, and that is the basic reason why some deductions will raise a so-called red flag when they are spotted on a return. Once that happens the tax return may be studied more carefully and closely – and that always increases the chances that the IRS employee will find a mistake or problem that could cost you more money in taxes, fees, and penalties.
A few of the big deductions that raise eyebrows include those that relate to home businesses, travel and entertainment, and using your personal car for business purposes. If you claim a home office deduction – which lets you deduct part of your mortgage as a business expense – then you are expected to only use that part of your home for business and never for anything else. If you have a vehicle and you claim mileage for gas or other expenses, you are expected to keep a daily written log of every mile. If you use the same car for running personal errands, for instance, then those miles do not qualify.
Because there is so much opportunity for abuse of these kinds of tax perks the IRS watches them like a hawk. So unless you can diligently back up your claims – and have enough financial incentive to take the deductions and risk an audit – you may be better off not using some of these more high-risk deductions.