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You can claim any deductions you want to take on your tax return, However, all the deductions you claim are subject to review by the IRS . This review is called a tax audit.
There are three types of audits: correspondence audits, office audits, and field audits.
Correspondence audits. As the name indicates, correspondence audits are handled entirely by mail. These are the simplest and shortest type of IRS audit, usually involving a single issue. The IRS sends you written questions about your tax return and may request additional information and/or documentation. If you don’t provide satisfactory answers or information, you’ll be assessed additional taxes. Office audits. Office audits take place face-to-face with an IRS auditor at one of the 33 IRS district offices. These are more complex than correspondence audits, often involving more than one issue or more than one tax year. If you make less than $100,000 per year, this is the type of in-person audit you’re likely to face. Field audits. The field audit is the most comprehensive IRS audit, conducted by an experienced revenue officer. In a field audit, the officer examines your finances, your landlord and other business activities, your tax returns, and the records you used to create the returns. As the name implies, a field audit is normally conducted at the taxpayer’s place of business, which allows the auditor to learn as much about you as possible. Field audits are ordinarily reserved for taxpayers who earn a lot of money. You probably won’t be subjected to one unless you earn more than $100,000 per year. Things that IRS will Look When auditing small landlords, the IRS is most concerned about whether you have: •underreported your rental income • claimed tax deductions to which you were not entitled • properly documented the amount of your deductions, and • complied with the passive loss rules and other restrictions on deducting rental losses. |
Income Tax Guide