Just between us: Did you pad anything on your return to lower your tax hit or boost your refund? Or maybe just take your best guess on some numbers because … well, figuring out the right ones is too hard?
If you answered yes to any of the above, chances are you’re not alone.
To find out the most common ways people stretch the truth on their tax returns — inadvertently or intentionally — CNNMoney talked to three former IRS revenue officers who used to deal with individual audits and now work as tax pros helping clients avoid audits.
Here’s what they’ve seen:
Work mileage: If you use your car for business purposes, you’re allowed to take a deduction for it based on the miles you’ve driven for work trips only.
If you don’t keep a meticulous written log as you go — starting mileage, ending mileage and the business purpose for each trip — it’s very hard to make up a number that passes the sniff test in an audit, said enrolled agent Michael Raanan of the Landmark Tax Group in Orange County, Calif.
The IRS will want you to substantiate your claim. One way to back out the number is to track mileage between your office and various job locations — for example, a realtor could measure the mileage to each listing in a given year — or to pull records from your GPS.
Non-cash donations: Those clothes-stuffed bags to Goodwill are worth … oh, I don’t know … $600?
Yeah, not unless you can back it up.
For any non-cash donation for which you claim a deduction of $500 or more, you must attach to your return not only the receipt for your goods from the charity, but also an itemized breakdown of what you donated and the fair market price for them today, not when you bought them.
If the donation is below $500 you don’t have to attach documentation, but you do have to produce it if you’re audited, Raanan noted.
Home offices: Just because you work from home doesn’t necessarily mean you may take a home office deduction.
Are you doing so for your convenience or your employer’s? If you’re working at home because you asked to telecommute, then your workspace is not deductible, said CPA Steve Craig of Larry J. Wolfe, Ltd, a firm in Skokie, Ill. that resolves tax controversies.
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If you’re doing it for your employer’s sake or because you run your own business out of your home, you may only deduct the portion of your home used exclusively for work. Remember the sniff test: If you live in a 10-room house, it may look suspicious if you claim 40% of it is used exclusively for work, Craig said.
Until recently, there was only one, complicated way to figure out your home office deduction. As oftax year 2013, however, a simpler option was introduced: you may opt to take a flat deduction capped at $1,500 if you just use one room for work.
Contractors’ write-offs: If you work for one employer but are classified by that firm as anindependent contractor, your income will be reported to the IRS on a 1099 form instead of a W-2.
That means you may need to fill out Schedule C just as any self-employed business owner would, and therein lies temptation to fudge any number of business expenses, Craig said.
A dead giveaway to an IRS agent is when you round numbers up by $500 or $1,000 — e.g. , you incurred $1,657 in deductible expenses but claim $2,000. “Nobody spends exactly $2,000 on supplies,” Craig said.
Or you use Schedule C to deduct $7,000 in legal fees … for your divorce, which had nothing whatsoever to do with your livelihood or business.
Gambling losses: If you had a great year at the craps tables, the casinos where you play will send you a W-2G for every round of gambling winnings in excess of $1,200. And that has to be reported on your 1040.
But here’s the thing: So do your $150 wins too, even though there’s no official form reflecting that.
If you don’t report those smaller wins, too, that may raise a flag. The IRS will figure if you rack up a number of W2-Gs, you probably also had plenty of nights where you walked away with less than $1,200, said CPA Stan Green, also of Larry J. Wolfe, Ltd.
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Of course, you probably lost a few rounds too. The good news: if you itemize your deductions, you may deduct your gambling losses on your federal return but only up to the amount of your gambling winnings.
So the IRS will expect you to keep a log of those losses with the dates you incurred them and the amounts. A casino membership rewards card, if you have one, may help do that for you since it tracks your activity at the casino.
Rental losses: If you work full-time at a W-2 job and own a rental property or two on the side, it may be tempting to make the most of your rental losses when you fill out a Schedule E.
But only professional landlords can do that.
Here’s how it works: If you’re not a real estate pro, your losses are capped at $25,000, but you may carry over any losses above that amount to future tax years.
If you are a pro — meaning you spend more than half your time in the real estate arena, Craig said — you may claim all your rental losses in a given year.
The IRS will be a little suspicious, he said, if you assert that more than half your time was spent on one or two properties.