One big reason that individuals may come under scrutiny is a pending uptick in use of the home office deduction, Timothy McGrath, managing partner at Riverpoint Wealth Management, told FOX Business.
“If you look historically, the home office business deduction was always one of the areas the IRS was in-tune to,” McGrath said, adding that this year is one of the “rare circumstances” that a lot more people may be eligible to claim it.
The IRS is particular that the “home office” is used for work purposes only, so much so that McGrath said he has heard of instances where individuals have been questioned if they use a printer for personal purposes.
Michael Corrente, managing director at CBIZ MHM, told FOX Business that it is specifically important for self-employed individuals to keep good documentation of their expenses if they are claiming deductions for things like new computers or other work equipment.
“A credit card bill normally doesn’t hold up because it doesn’t have all the details,” Corrente noted. “The burden of proof is on the taxpayer.”
Some states have been notoriously aggressive when it comes to auditing, like New York and California. And this year states are dealing with massive budget holes resulting from coronavirus-related economic fallout.
“They’re going to be in a deficit situation, they’re going to be looking for revenue,” Corrente said, which means auditors are unlikely to relent despite the challenging circumstances that have arisen throughout the year.
Opportunities for tax departments to target individuals may be particularly ripe owing to numerous changes that have been enacted this year, McGrath said, pointing to everything from new tax credits to changes to unemployment to other special allowances, like the ability to tap into 401(k) accounts without penalty.
“I would be concerned as an adviser for clients to make sure they’re on top of all that’s going on,” McGrath said.
However, what avenue auditors choose to hone in on may vary.
“I would think they will be aggressive but I don’t know how aggressive they will be with individuals,” Corrente said, noting that they could go after corporations or other entities instead.