IRS Good at Playing the Match Game
April 6, 2012 (Tulsa World) This is the red flag season.
The red flag is imagery. A computer in one of the regional IRS offices tags a return with a symbolic red flag when the numbers don't agree with wage information supplied by somebody who paid for a job.
Government systems have long been regarded as average at best when it comes to sophistication and accuracy. But the IRS program for matching wages and earnings is about as good as it gets.
Fear of an audit causes some to overpay what's actually due on their taxes.
Letter of the law: The next time you fly somewhere, look down there. See that little frame house in whatever state you're over?
If income declared doesn't match monies received, the person in that house - one of a hundred million or so dwellings holding taxpayers - will get a letter asking for an explanation and sums due, plus interest.
The equipment and manpower necessary to monitor taxpayers and their foibles, and their companies, suggests that a simple tax code is still a ways off. Under a flat tax rate, unemployed IRS workers could cause the unemployment rate to double.
Written mini-audits have replaced on-site visits whenever possible.
Whereas unbalanced numbers on a return raise red flags, here's something that lights up the sky, that starts the fireworks, that probably turns on an IRS computer like a slot machine on a jackpot: the home-office deduction.
Official business: The home-office claim is not for hobbies.
It is not for fantasies, for endless losses based more on dreams than ability and performance.
Even if you follow the letter of the IRS home-office law right down to the last dollar deducted, it is not a claim for the shy, because you could have government company one day.
The key word in any home-office business is "exclusive." The home office must be used exclusively for work. Its value as a deduction is measured in square feet and corresponding percentages of bills and expenses, plus receipts.
A small or one-person company is entitled to work with all the deductible rights of a big operation like the General Services Administration, a government agency that just conducted some monkey business in Vegas at taxpayer expense.
Here's the way to wrap up your home-office tax work.
Imagine welcoming an IRS field agent into your home office and showing him or her your work.