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Mike
Carruthers:
If
you have an office in your home, do you deduct it on your income
tax?
Kevin McCormally:
I get a lot of questions from taxpayers every year about,
"You know, I have an office in my home, I'm afraid to claim
home office deductions because I'll be audited - it's a red flag
for an audit."
Kevin McCormally,
The Editorial Director of Kiplinger's
Personal Finance Magazine and the Kiplinger Letter…
I've talked to
a lot of IRS auditors - they claim there are no red flags. You
know what sets off the red alert at the IRS is if the picture
you paint of yourself on your return is wildly out of whack
of what other taxpayers that live in your area and make your
kind of money report on their return. But otherwise if you have
a legitimate deduction for a home office or any kind of business
expense, I say take it. To overpay your taxes to avoid an audit
is like paying protection.
Maybe one percent
of taxpayers get audited, says Kevin, and it's important to
keep in mind that of that one percent…
Seventy percent
of the people are audited. They get a letter from the IRS; it's
called a correspondence audit. And usually what it says is,
"We got a statement from your bank or your mutual fund
or your broker that says you've got a thousand dollars worth
of income, you only reported four hundred - explain the discrepancy."
And if you can explain it, fine; if you've failed to report
some income, you report, they charge you some interest. People
are way too afraid of the IRS.
If you haven't
yet filed your tax returns for 2006, Kevin recommends you use
tax preparation software to do it.
The reason is
the people who write those programs, they had to update all
of these things - they're faster, easy and they're up-to-date.
At somethingyoushouldknow.net,
I'm Mike Carruthers and that's Something You Should Know.
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