21 Common Tax Deduction Myths con't...

16.  I won't get audited because I'm lucky...

True, if your income is less than $25,000, you have less than a 1% chance for audit. Even if your income is greater than $100,000, your chance for audit is still less than 2%. But there is always that chance of a randomly selected audit. As mentioned above, the return is reviewed and scored by a computer and then sent to an examiner.

So regardless of your income level or your luck, if you have questionable items on your tax return, you'll have a greater chance of being audited. Putting false numbers on your tax return and hoping to win the "audit lottery" is more like playing "audit roulette."

17.  I won't get audited because I don't file until after audit 'testing' season...

This has been an ongoing myth for years and is still hotly debated by tax professionals.

Here's the strategy: File an extension of time to submit your return, and don't actually file it until Oct. 15. By then the bulk of the suspect returns are flagged for an audit.

Here’s the fallacy: Regardless of when you file, all returns are run through the computer and given a DIF score. If your score exceeds that which is considered above the normal cutoff point, your return has a high potential of an audit. It might be true that what is considered as a normal DIF score might fluctuate as more returns are put into the system, but it doesn't mean that a return filed later will pass simply because it came in at the tail end of the filing season. Remember, the audit selection process isn't even started until the end of June. That’s more than two months after the filing deadline of April 15.

Many tax pros still tell clients that a return filed in October will be less likely to get audited than a return filed in March or April. It’s just not true. Returns will be audited regardless of the ultimate filing date.

18.  I won't get audited because I deal in cash only, and they can't audit cash...

Have I got a great deal on a bridge in New York for you!  With the super computers they use today, "Big Brother" knows more then you think. Don't you think that an IRS agent will wonder how you can live in a $1 million house while your 1040 shows $30,000 for the year? And how about that $45,000 car in the driveway? If your life style says "Rich and Famous" and your return show poverty, your new suit might have stripes.

And what about those folks who deal in unreported cash that put their money in their bank accounts. Can you get any dumber than that? What will you say when asked, “Where did that come from?”

The IRS realizes that unreported income will always be one of the biggest problems facing the tax system. Trust me, they are doing something about it.

Something to remember: Deliberately understating your income is tax evasion. The penalties for this crime are severe. Do the names Al Capone, Pete Rose, or Leona Helmsley mean anything to you?  Lets face it, if they got Al Capone, they’ll get you!

19.  I won't get audited because I have an accountant who knows what you can get away with...

I’ve heard that cops will not issue a speeding ticket if you’re doing less then 10 miles over the speed limit. Problem is I’ve also talked to cops that say 1 mile over is still speeding.  Taking advantage of all of the legal deductions available is a smart move but it seems that some tax professionals urge their clients to trump up their itemized deductions to make the "average" deductions the IRS has computed and released.

Be warned: The averages released by the IRS vary by state and region. They aren't necessarily used to compute the DIF score in your area. Additionally, those shady preparers are usually MIA when you get the call from the IRS informing you of a tax audit. It might be hard to provide the documents to support a deduction you don’t understand or never saw before.

20.  If I don’t take every deduction, I will reduce the likelihood of an audit...

That’s a good one, “Cheat yourself so you don’t get audited.” Cheating yourself out of legitimate deductions has little to do with getting audited. It's all in the score when your return is run through the computer.

21.  If I don’t use the pre-printed label, I’ll decrease the chance of an audit...

I heard that one 20 years ago and I fell for it too. I also never used the envelope that the IRS sent to me. After I saw a breakdown of the cryptic coding on the label I gave up on that one. There are NO predetermined audits and no code on the label that says, “Watch this one, they cheat.”

Know Your Taxpayer Rights