The IRS Is More Likely To Consider You For Audit If You Make This Expense Mistake

For most taxpayers, interactions with the IRS beyond the annual obligation to report income and other financial information is something to be avoided at all costs. IRS agents work tirelessly to sift through hundreds of millions of tax filings each year, and that number only increases when considering amended returns and additional reporting duties that taxpayers sometimes find for themselves (such as business owners who may need to file personal taxes and report on their company's financials, too). Plenty of interesting tax strategies exist to help decrease your tax liability, and many taxpayers even deploy legal maneuvering to keep their obligation as low as possible and/or maximize their yearly return figure.

But some deductions and exemption strategies are more likely to add additional scrutiny from the IRS than others. One particular problem area comes in the form of medical expense write offs. To be clear, writing off medical expenses can be a legitimate and highly potent means of reducing your tax burden. If you've had a particularly tough year when it comes to treatment for a chronic disease or any other medical necessities (including paying for essentials), utilizing an itemized deduction in order to write off some expenses can be a solid approach. But it can also open you up to an increased audit risk. So, before claiming your deduction with these additions mixed in, it's worth remembering that you may be in store for a longer wait, and more questions.

The costs of medical procedures can easily build up into astronomical territory. This makes them a common component of an itemized deduction. Plenty of taxpayers who don't routinely break into the threshold of an itemized approach will do so during a year that they undergo intensive medical treatment or have a surgical procedure done. A joint or ligament repair or replacement, cancer treatment, or the expenses that can come after a traumatic car accident can all form the basis of a hefty itemized deduction come tax time. But medical expenses can often trigger additional scrutiny simply because so many people do their taxes wrong when including these features.

Medical deductions are often a source of tax preparation abuse — both willfully and accidentally. Things like personal travel expenses associated with (but not a part of) a legitimate treatment regimen are often lumped into the deductions that taxpayers may attempt to take — even though these costs should be excluded. Similarly, cosmetic procedures don't qualify as part of a legitimate deduction, whereas necessary ones do. With so many rules to follow, it can be hard to get this right. Similarly, those trying to game the tax system might seek to bundle more of these deductions than they should. As a result, the IRS looks a little closer at medical deductions than they do for many other elements of a 1040 submission.

Taxpayers have a decision to make every year when preparing their filings. The choice is often quite simple, with most people take advantage of the standard deduction instead of going through the process of itemizing their write offs. For one thing, most taxpayers don't actually have enough potential claims to make the extra work of itemizing worth it. Add to this the reality that itemized deductions can be a red flag on your reporting that triggers an IRS audit, and it becomes clear that itemizing is not the best approach for most. If you're hoping to get your refund deposited quickly, and without added hassle, using the standard deduction — and maintaining a straightforward accounting of your past year in finances — is the clear path.

But if you're someone who has additional complications in your financial life, the itemized approach may be worth the added legwork. For instance, those who work from home can tally up their purely work-related expenditures and use these costs to offset their tax bill. Other deductions can also play a role in reducing your tax obligation, such as the side effect of charitable giving. However, in order to claim an itemized deduction, you'll want to ensure that you can prove all the expenses you are claiming. Flagging these tax filings is somewhat common, and when it happens, the IRS will diligently compare your claims against the typical deductions taken by others in the same category. Medical expenses become pretty tricky in this regard since insurance arrangements tend to muddy the waters and every treatment plan is unique.