Despite noise to the contrary due to the partial government shutdown, tax season is off to a smooth start. Part of what will make this tax season much smoother for tens of millions is the realization that you may no longer need to itemize. Due to the Tax Cut and Jobs Act, approximately 81% of people who itemized last year don’t need to this year. That saves time, money for tax preparation and stress of getting it all together. However, this does place greater emphasis on those who are itemizing. Something we haven’t talked about is the impact of the new tax law on the audit process. Now that there are fewer people itemizing their taxes, those who do will likely come under closer scrutiny. Every year the IRS has “points of emphasis” or audit triggers they look for, this year is no different but many of the triggers are and they all have to do with itemizing.
Here are the top audit triggers for 2019:
- Charitable donations
The IRS knows the average charitable donations based on income reported. If you claim charitable donations above the averages,you’re far more likely to gain extra attention. The IRS is of the view that this is the most likely way that some will attempt to illegally limit their tax liability this year given the limits on state and local tax deductions.
- Turning a home into a rental
This is a tactic the IRS flagged as a way some will try to get around the SALT limits as well. Plus be mindful that in Florida, if you claim a home is a rental, it’s no longer eligible for homesteading. This could turn into a problem with the IRS and state/local governments if you aren’t completely on the up and up.
- Foreign accounts/income
The IRS has placed added focus on these for years but especially in light of the new tax law, they’re monitoring any change in financial activity that’s unusual with foreign accounts that might be used for illegal tax sheltering.
The bottom line is that the IRS has approximately the same number of agents and auditors as last year but fewer complicated returns to review. That means that there’s a better chance that those playing fast and lose won’t slip through the cracks this year.
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