Filing taxes is a responsibility that comes with its own set of challenges, especially when it comes to deductions. Deductions are a great way to reduce your taxable income, but they can also be a minefield if not handled correctly.
When you file your taxes, you might think it is a good idea to claim as many deductions as possible to lower your tax bill. But be careful, because inaccurate deductions are a common mistake that can lead to serious issues with the IRS.
The IRS checks for accuracy
The IRS employs systems to verify the accuracy of deductions, and if they spot anything suspicious, they will closely examine your records. This may involve a straightforward request for additional information or could escalate into a comprehensive audit. In any case, it adds unnecessary stress and inconvenience that you’d prefer to steer clear of.
Common inaccurate deductions
Some common areas where people make mistakes include claiming too much for charitable donations, home office expenses or business expenses. You need to make sure you only claim what you are legally entitled to and that you have sufficient records to back it up.
Penalties and interest
If the IRS finds out you have claimed inaccurate deductions, you could face penalties and interest on any extra tax you owe. The IRS will determine the amount of the tax underpayment and will charge you a 20% penalty on that amount.
Honesty is the best policy
To avoid problems with the IRS, be honest and accurate with your deductions; if you are not sure about something it would be wise to seek advice from a tax professional.
Remember, it is better to play it safe and stay on the right side of the law when it comes to taxes.