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Tax Planning/Don't want to get Red-flagged/audited


QUESTION: Hi Richard,

It seems to me that having a Schedule C with expenses but no income, since Iíve had income every year in the past, might beÖÖunusual. So I want to make sure I donít get red-flagged/audited.

Iím in commercial real estate; income last couple years been $100,000 range; expenses $40,000-$60,000 .

For 2015 I had no real estate income; partially because of deals that fell through and partly because I took some time off for health reasons and lived off of income from 2014 and some Social Security.

I do have social security income for 2015 of about $15,000 which I will claim.

My question is, to keep my tax return from being red-flagged, should I omit my real estate expenses on 2015 tax return since I have no real estate income or should I include my real estate expenses even though Iím showing no real estate income? In other words, I donít mind omitting my real estate expenses if it will better my chances of not getting red-flagged/audited.

Not asking any kind of filing question here; my only question is about making sure I donít get red-flagged/audited for an ďunusual return.Ē  Iím wondering if IRS will look at my return and say, ĎHey, this guyís had real estate income last few years, now suddenly he isnít showing any but heís showing expenses, whatís going on?í

I have receipts for every penny of expenses including a detailed & accurate written mileage log. OR, maybe my situation isnít so un-typical as I think it is and Iím just over-analyzing.

And if I omit my expenses/income, what do I show for Occupation on page 2 of 1040, retired?

I have no outstanding tax liability.  

Thanks so much,

ANSWER: I wouldn't worry about getting audited. Your income wasn't high enough to merit much attention from an under-manned IRS. I would enter all your expenses, you can only apply them against income anyway. You might look and see if you can carry some of your expenses into this year.

---------- FOLLOW-UP ----------

QUESTION: Thanks so much, Richard.

Curiosity question; generally speaking, what is the minimum income range that might generate attention for an audit?  $250-$350,000 range or more like $350-$500,000?
I suspect it depends on other factors besides income, but generally speakingÖ..

Thanks again, Richard

Don, it's not just income or profit. The IRS has a computer to review every return. If you get too far outside the norms you could get flagged. Most audits these days consist of a letter in the mail where the IRS explains its position. I would get TurboTax, or similar, it will give you a general reading on whether you might expect an audit.

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Richard S


My expertise is in collecting past due taxes and tax returns. While at the IRS I worked on wage and bank levies, liens, Offer in Compromise, late filing and payment agreements every day. I spoke with over 20,000 people concerning their issues while I worked there (just retired).


Ten years working for the the IRS in Collections and tax return review. Worked with over 20,000 people on their IRS issues. Explained their options and usually worked out a solution while they were on the phone.

Masters Degree from Iowa State in Ames.

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