Writing Off a Loss from Hobby

Any earned income from a hobby must be declared. While no person can claim a loss from any hobby, taking a certain amount of loss is possible. All it takes is proving you gain income from your hobby.

Claiming a Home Office Deduction

Claim a home office deduction and you shall be audited. But if you do qualify for such a deduction, a percentage of expenses relative to operating a home office may be reduced. Here’s one way of stating a home office deduction: Take $5 per square foot which serves as your home office (that is if the space is only used for that purpose).

Donating a Lot of Money

Make charitable donations as much as you can. However, if you are giving too much, you are at risk of being audited. Trust the federal agency to know the appropriate amount donated for each income bracket.

Withdrawing from 401(k) or IRA Prematurely

A holder is required to pay a 10% early withdrawal penalty in the event you take away money from 401(k) or an individual retirement account beforehand. But there are some exemptions to this penalty such as unreimbursed medical expenses.

Filing an Alimony Deduction

Check the IRS website to find out the prerequisites for lowering or terminating alimony payouts.

Reducing Travel Expenses

Businessmen need to travel to meet clients. Travel-related costs are deductible but the problem arises if these expenses are higher than what is expected from your business.

Declaring a Vehicle for Business Use

If you indicate your car being used solely for business-related matters, most likely the agency will audit you. It pays to maintain a detailed record of the mileage used for personal and business. Provide other useful paperworks as well.

Reporting Incomplete Income

Expect the IRS to knock on your door if your income tax return is incomplete.

Earning Lots of Money

There’s nothing wrong with earning a considerable amount of income in a year. But the IRS may think of something else if you make a lot of money. The best way to avoid tax audit is to come up with documents supporting your salary.