New Year's Eve is just around the corner and it’s time to start making resolutions for 2012. When it comes to tax resolutions for next year, visions of refunds might be dancing in your head while you dream of deductions while lying in bed, but don't dream too hard or old Scrooge will call your deductions from up to three Christmases past for an IRS audit!

What causes IRS audits? After over 30 years experience with thousands of returns, here is my Christmas shopping list of things I don't want to see in my stocking or on a return.

5. Gambling loss deductions tend to catch the eye of the IRS and bring audit notices. Many Americans will win some type of lottery, scratch off, slot machine bonus or prize and then take the advice of their friends and deduct everything they can as a gambling loss. The record-keeping rules are very strict for gambling losses, the deduction is not that good, and your audit risk increases as fast as the number of times you hear "Grandma Got Run Over by a Reindeer" on the radio after Thanksgiving. My practical advice? Unless you have a detailed record of date, time, place and amount of each gambling activity, don't even try this deduction on the first or last day of Christmas.

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4. Using the wrong tax preparer can actually bring you coal for Christmas! That's right, some people get audited because their tax preparer got audited. The problem has become so bad that last year the IRS stepped in and set up licensing and continuing education requirements for tax preparers. The agency reported that more than 100,000 preparers (out of an estimated 730,000) still did not get licensed. Avoid this problem by asking to see your preparer's license. Your preparer should be either a CPA (Certified Public Accountant), an EA (IRS Enrolled Agent) or, after the first of 2012, one of the new entry-level licensees called RTP (Registered Tax Preparer). Ask them what classes they attended last year; as a minimum, every one of the above folks has to attend at least two days of updates every year.

3. The Grinch at the Treasury Department publishes average tax deductions, and right now the most recent numbers are from 2009. I have always believed that exceeding the averages by more than 25% triggers the partridge flying down on you from the IRS pear tree.  Here are those numbers for comparison:

 

Adjusted Gross Income Taxable Income Interest Expense Taxes Paid Deduction Charity Medical Expenses Deducted Total Itemized Deductions
Under $15,000 $2,739 $8,838 $3,337 $1,496 $8,414 $16,164
$15,000-$29,999 $9,279 $8,434 $3,184 $2,048 $7,783 $15,608
$30,000-$49,999 $24,428 $8,699 $3,943 $2,274 $7,028 $16,404
$50,000-$99,999 $46,401 $10,133 $6,247 $2,775 $7,269 $20,350
$100,000-$199,999 $97,042 $13,456 $11,069 $3,888 $9,269 $28,952
$200,000-$249,000 $171,938 $17,572 $18,524 $5,974 $21,599 $41,595
$250,000 & above $555,769 $25,527 $48,317 $18,488 $38,149 $89,432

 

 

2. Losses from small businesses and unreported income are as annoying to the IRS as massive lines at the check-out at every retailer. These things just grate on the IRS nerves because they are often not truly businesses and can even represent an obvious tax cheating scheme.

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1. High levels of income can increase the risk of an IRS audit. Data shows that Americans with more than $100,000 of income are nearly twice as likely to be audited as those with $50,000-$100,000 of annual income. If you have really obtained the five golden rings of income, once you hit $200,000 your audit chances double again, and if you somehow hit the Miracle on 34th Street with earnings of more than $1,000,000 your audit risk doubles again.

There are many deductions that are allowed on your tax return, but good tax planning can avoid the need for them and the problems they bring from the IRS.

Bob Jennings is a CPA, EA and CFP and author of “Understanding Social Security & Medicare” His website is www.thecloudcpa.com and he can be followed on Twitter @Jenningsseminar