Myth: Home-Office Deduction is a Red Flag for IRS Audit

March 3rd, 2014 at 7:33 AM

If you put “home office” and “red flag” in Google with quotes you find 157,000 results!! The interesting point is there are many articles that say claiming home-office as a tax deduction is a “red flag” for an IRS audit; however, there are many others to the contrary. Who’s right? And Why?

The IRS does NOT publish its audit flags.

So how do professionals, newspapers, and newsletters know if the home-office is, or is not, a red flag. Answer, they do not know–as they never cite any authorities to back their claims.

Here’s real proof that the home-office deduction is NOT a red flag. A recent study was performed by a well known CPA through his webinars with 36,000 attendees about the home-office deducton. The result was that the rate of audit for those who claimed the expense was NO greater than the rate for those who did not claim the expense. Moveover, the CPA discovered hundreds of cases where the business owner claimed the deduction, experienced an IRS audit, but was never asked about ths home-office deduction during the audit!

Therefore, my conclusion is the home-office is NOT a red flag item on your tax return, IRS does not publish its audit flags, and red flags are secets that have not been published.

I educate my cients on the documentation needed to support the home-office deduction.  In many cases, the client DOES work in thier residence, and the home-office deduction is 100% valid per IRS publications, rulings, and court cases.

Please contact me if you would like to be an informed client who takes advantage of the IRS Tax Code, IRS Publications, Rulings, Tax Court Cases, etc. to substantially reduce their Federal & State Income Rax Liabilities.