Few life events are more stressful than an IRS audit. After all, not only must you gather tax and other financial records that may be hard to find, but you may also face a stiff penalty when the audit concludes. Put simply, there is nothing wrong with trying to lower your risk of receiving an IRS audit notice.
During the last fiscal year, the IRS performed more than 500,000 audits. While that may seem like a huge number, it is actually down from the previous year when the agency conducted upwards of 770,000. Fortunately, your home office is not likely to increase your audit risk.
The home-office deduction
The IRS allows taxpayers to take a deduction if they use any part of their home for business purposes. This deduction is typically available to both homeowners and renters. In the past, the home-office deduction was a red flag to IRS auditors. That is no longer the case, however.
The popularity of home offices
For a variety of reasons, more Americans than ever are maintaining home offices. This fact alone makes it virtually impossible for the IRS to use home offices as a reason to conduct audits. Still, your risk is never non-existent.
Your audit strategy
Even though you may never receive an audit notice from the IRS, it is advisable to prepare for one. When it comes to your home office deduction, you should retain the following documents:
- Mortgage interest statements
- Utility bills
- Property tax records
- Expense records
- Your rental agreement or mortgage
Ultimately, by keeping comprehensive records, you put yourself in a strong position to respond quickly and effectively to an unexpected IRS audit.