Large tax deductions can occur for a variety of reasons, but they can make you a target for an audit. How can you minimize this risk? In a BLR webinar titled "Tax Savings for Small Businesses: How to Maximize Valuable Deductions and Avoid IRS Overpayments," Brian C. Greenberg, CPA, outlined some examples.
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Get Your Report Now!Unusual or relatively large deductions can draw attention for audits. When you have something that is a legitimate deduction, such as a business loss, it is recommended to attach supporting documentation to your return that supports this deduction. This action can keep you from being audited because audits are often triggered simply by having something out-of-the-ordinary that needs investigated. With documentation included, this problem is removed.
Another example of a potentially problematic deduction is one for an automobile that has been donated to charity. Automobiles donated to charity can be deducted on your taxes. However, the law changed recently and some people are not aware of this. The bottom line used to be that if you donated a car you could use the book value of the car as a write-off value for the charitable contribution. Now, the amount you can claim is based upon the amount of money actually received by the organization for the car. For example, if a vehicle is auctioned-off and the proceeds are given to the charitable organization, the auctioned-value of the car is the amount that you can write off as a tax deduction, regardless of whether that is lower than the book value of the car. As such, you must follow through if you make such a charitable contribution; you must ensure that the charity identifies and communicates exactly what they received for it.
Brian C. Greenberg, CPA, is the founder of Brian C. Greenberg & Associates, LLC, a New Jersey-based tax accounting firm. (www.greenbergcpa.com) With 30 years of experience as an accountant, Greenberg has developed a diversified background to service his clients’ needs. Greenberg has extensive media experience both nationally and locally, commentating for the Wall Street Journal Report, Fox Business News, Bloomberg News, Forbes TV, and local TV in Philadelphia with ABC, NBC, and Fox. He has appeared as an analyst on the economy, stock market, taxes, budget issues, school issues, and more.
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