What to do when IRS questions your Tax Deduction?
A tax deduction is what allows a taxpayer to lower their liability of tax by actually lowering the amount of taxable income. This deductions typically are expenses incurred by the taxpayer throughout the tax year. There are different tax codes that allow tax payers to utilize the deductions. These codes vary by state and federal levels. Examples of tax deductions include charitable donations, home office expenses, healthcare costs just to name a few.
The internal revenue service (IRS) expects each taxpayer to file their taxes with complete honesty including the claiming of tax deductions. In case the IRS questions the taxpayer on any tax deduction, it is the responsibility of the tax payer to establish his innocence and provide evidence to IRS that proves the tax deduction. The burden of proof is the tax payer. There are few things you can do to defend the tax deductions you have claimed.
1. Use the record of your expenses
It is highly recommended that you keep the record of all your expense that you have used in the claiming the tax deduction. This is a good start to build your case. If you have a receipt that can be verified, that will be vital to the defense of your case. Also keep in mind, you need to show why you needed to incur that expense. For example, you claimed a tax deduction for expenses incurred by using a home-office for your work. A deductible expense could be a portion of the utilities bill of you house. Now this portion of the bill should reflect the area of the room you are using as your home office. If you house is 5000 sq. ft and your home office is 1000 sq. ft, then you need to only use 1/5th of your utilities bill as tax deduction.
2. Payment was made
The need to incur the expense is proven but you also need to prove that the payment for the expense was made. Continuing with our example of utility bill expense for homes office, in order to prove this you need to have all the documents required such as your utility bill, size of your house, mortgage payment or rent etc.
3. Establish you qualify for the expense
In steps 1 and 2 you made sure you can prove that you incurred the expense and you paid for the expense. Now in Step 3, you need to prove you are qualified to deduct that as an expense from your taxes. Example of this would be that you can prove why you need a home office. Are you a freelancer? Or remote employee? Do you work from home on certain days of the week? If you can prove why you need to use the home office, then you have established you qualify to claim that tax deduction.
In any case, it is highly recommended that you contact a professional Atlanta tax attorney that is experienced in these matters to guide you through this process. If you are in the metro Atlanta area, contact our tax attorney team to guide you through this process. Get in touch by calling (678) 385-5953. You can find all the contact information on our website. Please feel free to drop by the office or give us a call.
