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IRS Audit Flags

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I thought it might be beneficial to start a thread where people list any real estate-related audit flags that the IRS likes investigating.

I'll start by adding one or two:

 

1. Deducting expenses for prior years' business activities. I was sued (what fun) over an old business activity I no longer did any work in, and settled the suit, but my accountant said the deduction was sitting all alone on that page of the return, with no current income or activity in that area, which means I'll probably get a friendly call from my local IRS agent to demand at least an explanation.

 

2. Business Mileage. While there is some safety in numbers here, as many filers list substantial business auto mileage, the IRS knows even before an audit whether you have any proof that you drove those miles for business, because you have to check a box and tell them! Talk about easy prey. Proof is hard to furnish on this one, but at least have an explanation for those miles prepared and ready in case Uncle Sam comes a-knocking.

 

What are some other audit flags real estate investors need to be aware of?

 

____________________

Brian

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2. Business Mileage. While there is some safety in numbers here, as many filers list substantial business auto mileage, the IRS knows even before an audit whether you have any proof that you drove those miles for business, because you have to check a box and tell them! Talk about easy prey. Proof is hard to furnish on this one, but at least have an explanation for those miles prepared and ready in case Uncle Sam comes a-knocking.

The proof is easy -- maintain a mileage log. The IRS gives instructions on what they want you to record in the log. My personal financial management software even has a Business Mileage Tracker feature exactly for this purpose.

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