Tax Tip #192
Red Flag #1
Every now and then the Mega Millions hits one billion dollars. The odds of winning that jackpot are microscopic. Want to know how to increase those odds? So does every member of the Goldstein & Loggia team. However, the G&L team can help you increase your chances of being audited by the IRS. Here is an example of how to do that.
Taxpayer has a fulltime job with earnings in the six figures. Taxpayer earns $3,000 on a 1099 for some side work. Taxpayer deducts business related expenses of $3,500. The IRS likes to pick this type of tax return for audit. Why? They usually win, stating that this is not a business to make a profit, but a hobby. The taxpayer is not satisfied reporting a loss for one year and reports a loss three years in a row. This increases the taxpayer’s chances of being audited as the rules presume that the taxpayer is running a business to make a profit if there is a profit in three out of every five years. The burden of proof is on the taxpayer to prove this is a business and not a hobby. If the taxpayer loses, all the expenses could be disallowed and reclassified as an itemized deduction, which is a problem since these deductions have been eliminated by the tax law changes of 2018.
Rather not increase the odds of being audited? Reach out to a member of our team.
