No Good Deed
If you make $80,000 a year and give $10,000 to charity, you’re a good man. You’re also on your way to earning a pretty high DIF score. The IRS is thought to have thresholds above which deductions look suspicious, whether they're charitable deductions, business expenses, local taxes, or dentist bills. Janet Hagy, the Austin, Texas-based proprietor of accounting firm Hagy & Associates, says a client of hers is being audited because his charitable contributions look high relative to his income. Hagy says no one outside the IRS knows exactly what the level is that trips the alarm, but the IRS publishes a handy list of average itemized deductions. For taxpayers with adjusted gross income between $50,000 and $100,000 who itemized, the average charitable deduction was $2,815 in 2010 (the most recent data available). I’m not suggesting that you give less than that, but I'd recommend keeping impeccable records if you decide to give more.
Embrace the Decimals
Odds are the interest on your student loan isn’t exactly $500, so use the real number, not a rounded estimate, which can raise eyebrows at the IRS. “It might look like your record keeping is shoddy,” Hagy says. To make your, and your accountant’s, life far easier, buy a desk calendar and staple your receipts on the corresponding day, with a note explaining the expense. You’ll be bulletproof in an audit.
Don’t Drive and Deduct
The IRS allows you to write off 55.5 cents per mile (or to use a more complicated depreciation method) for business use of a personal car. But not so fast: Commuting doesn’t count. And you’ll need detailed records, such as “a daily log showing miles traveled, destination, and business purpose,” to quote the agency. Once again, don’t shy away from a valid deduction; just make sure that you're prepared to prove your case.