Common mistakes on returns that cause the IRS to audit the complete return. Failure to list all Forms 1099-INT, Interest Income, on Schedule B, in such a way that the computer or any dummy could find the interest income on the return. The most common error in this department is the failure to report the transfer of moneys from one mutual fund to another mutual fund. Failure to list all Forms 1099-DIV, Dividends, at gross dividends on Schedule B and deduct the nontaxable distributions and capital gains distributions. Failure to report all Forms 1099-MISC, Miscellaneous Income, on the appropriate schedule.
Most traps arise due to the mixed personal and business use of certain assets and deductions.
The IRS presumes all assets and deductions are personal unless the taxpayer has the records to prove otherwise. Typical deductions that the IRS looks upon as personal unless proven other wise, are meals, entertainment, travel, and customer gifts. The typical trap the taxpayer falls into is that upon audit, the taxpayer does not have the detailed required records to prove to the IRS the amount of the business versus personal use. Upon audit, the IRS will request not only canceled checks and paid receipts or invoices, but also copies of insurance policies, contracts, calendars, logs, travel and conference agendas, journals, and diaries. Section 280F, 280A, and 274 of the Internal Revenue Code require automobile logs, logs of vacation home use, and who, what, where when and why of all travel, meals and entertainment.