These 5 Tax Hacks Could Get You Audited
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Tax experts explained which tax hacks to avoid and which to use carefully so you don't get audited.
Claiming All Rent or Mortgage as Home Office Deduction
For self-employed people or those with a freelance side hustle, you're already on the IRS' radar, because it's easy to call things business deductions that aren't. While you are legally allowed to write off a portion of your rent or mortgage based on certain criteria, according to Robyn Little of The Little Tax Co., you should not try to deduct your entire rent or mortgage payment.
'Listen, the IRS is not green to what people are up to — and trying to beat the system usually just gets you flagged. What people think is a hack is often just a shortcut to an audit,' Little said.
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Claiming Mileage, Meals and Other Non-Business Deductions
Again, while you are legally allowed to write off some expenses such as mileage, meals and home office expenses, these have to be truly qualified business write-offs, and a lot of people try to fudge these, Little said.
Other personal expenses masquerading as business deductions include calling a vacation a 'work trip,' or writing off beauty supplies and memberships, according to Hector Castaneda, CPA, founder and principal at Castaneda CPA & Associates.
'Similarly, most people think you can write off gym memberships, haircuts and makeup. While there's an exception to almost everything, those costs are generally non-deductible unless they can be proven to directly improve your business,' he said.
'[The] IRS sees through that quickly,' he added.
Claiming a Super Low Income
If you report a 'super low income claiming big refunds' this can raise red flags with the IRS 'especially if your numbers don't make sense with your lifestyle,' Little said. For example, if you're claiming $15,000 in business expenses but taking luxury trips every other week (and posting about it on your social media), the IRS might come knocking.
Underreporting Income From Payment Apps
Additionally, underreporting income, specifically if you get paid through software's like PayPal, Cash App and Venmo, is a 'sure fire way to get a nastygram from the IRS,' Castaneda said.
'They'll get a copy of the income you report and yours should always be either higher or the same because of the cash component. Simple calculation errors or even information that doesn't match the IRS records (e.g., address changes, name changes, dependent changes) are the easiest ways to get flagged for further review,' he said.
Rounding Numbers on Your Return
If you're rounding numbers up or down to fudge details or even just make your accounting simpler, this is likely to get you into trouble, 'Because real expenses don't come out in even numbers. If your return is full of $500s and $1,000s, it looks like you're making stuff up,' Little said. It's better to keep actual receipts and use real numbers, not guesses.
Caveat Emptor
Take all the online influencer tax tips with a grain of salt, Little insisted. 'Just because somebody went viral doesn't mean they're giving accurate tax advice. A lot of folks are just posting for engagement, not facts.'
Castaneda added, 'The smartest thing you can do when you hear these 'tax gurus' speak is first verify their credentials.'
Always run it by a legit tax professional before you try anything you see online. Some of these 'tips' will land you in trouble.
Do This Instead
Avoid hacks and instead keep your receipts, track your income and only write off what you actually use for business. 'Don't try to beat the system — learn how to work within it. There are legal ways to save, you just have to know the game and play it smart,' Little said.
Better yet, 'Bring all of your tax information to a trusted tax professional, have support for everything and, even then, you could still be audited,' Castaneda said. However, an audit is not concerning if you can substantiate it.
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