NCPA - National Center for Policy Analysis

For Taxpayers, April Is The Confusing Month

March 5, 1999

With a host of important changes in the federal income tax laws, filing tax returns this year will be even more confusing than last year's process.

Here are two areas which raise audit flags, according to Sheldon Ganis, tax partner with Grant Thornton, an accounting firm.

  • Unusually large deductions for charitable donations, relative to income.
  • Business use of home computers -- for which a log must be kept, the same as for the business use of a car.

The wealthy are more likely to be audited than poor and middle- income families.

  • For those making $100,000 or more the chance of an IRS audit is 4.1 percent.
  • Only 0.7 percent or 0.8 percent of families earning between $25,000 and $99,999 a year can expect to be audited.
  • But 1.4 percent of those with gross income of less than $25,000 will receive a call from the tax man.
  • Self-employed individual returns showing gross income of $100,000 or more will receive scrutiny 4.1 percent of the time -- but if such income is between $25,000 and $99,999 the figure falls to 2.6 percent.

Frequently overlooked deductions include accounting fees for tax prep and audits, appraisal fees for charitable donations and casualty losses, appreciation on property donated to charity, and casualty or theft losses. Also, commissions and closing costs on the sale of a property, costs of looking for a new job, dues to labor unions, fees for a safe-deposit box to hold investments, investment advisory fees, lead paint removal and legal fees in connection with obtaining or collecting alimony.

Then there are out-of-pocket expenses related to charitable activities, penalties on early withdrawal of savings, points on a home mortgage and certain kinds of refinancing, and state personal property taxes on a car or boat.

Sources: John Waggoner, "Surviving Tax Season," and "Managing Your Money" charts, both in USA Today, March 5, 1999.


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