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Dodging IRS Red Flags
By Jerry Kalish
We use the expression of a "red flag"--as in, “you're waving a red flag"--as a metaphor for something that incites interest, or for something that signals that it is fishy. Red, of course, tells you to stop. The metaphor comes, I like to think, from the sport of bullfighting.
In the tax world, a "red flag" is a big bright thing sticking out from a tax return that provokes the raging bull known as the IRS to investigate more closely, and perhaps conduct an audit. Matadors may find it handy to unfurl their red flags; taxpayers will not.
Red flags are exactly what Peter Pappas writes about in a recent post on his The Tax Lawyers Blog. (Hat-tip to Joe Kristan of Roth & Company, P.C.)
Here’s Pappas’s list of the "5 Slam Dunk Audit Red Flags"
1. Home Office Deduction
2. Job Expenses
3. Rental Losses
4. Schedule C Expenses (which is to say, business expenses).
5. Charitable Contributions
You can read Pappas’s post in its entirety to get the entire picture, but here are some suggestions that he says may dilute the red flag status of these deductions.
1. File your return in a timely manner.
2. Use a recognized software program to prepare and print your return.
3. File the return electronically.
4. Have a respectable CPA, tax lawyer, or IRS Enrolled Agent sign your return as tax preparer.
5. Attach explanatory statements to your return where necessary.
We’re already six months through the current tax year so it’s not too early to consider Pappas’ suggestions. In fact, when it comes to tax matters, it’s never too soon.
Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.
Comments (0)July 8, 2009 9:40 AM
