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Which common deduction triggers California tax audits?

For many California residents, tax time is stressful. Aside from the hassle of going through receipts and worries that there could be missed deductions, many fear that they will be subjected to tax audits as a result of their return. While there are a number of issues that can trigger a tax audit, some deductions are more likely to invite the scrutiny of the Internal Revenue Service.

One example lies in the home office deduction. By some estimates, as many as half of American workers are employed through a small business. Many of these workers make use of a home office, and have the ability to claim that workspace as a deduction on their income taxes. While the home-based office is a legitimate tax deduction, there are a wide range of rules that must be adhered to in order to make this claim.

The IRS is planning to ease some of the restrictions for home office deductions, but those changes will not take place until the tax season of 2014. Until then, filers must ensure that they use the home office as their principle place of business. In addition, it should be the location at which one meets or interacts with clients, customers or patients, and where most of one's work activities take place.

When deciding whether to claim a deduction for one's home office, it is wise to review the current tax regulations that pertain to home office deductions. They must also ensure that their office meets the given standards. For California filers who find themselves subjected to tax audits as a result of the home office deduction, being able to prove that the office conforms to the IRS guidelines is crucial for a successful outcome.

Source: Forbes, "Claiming This Deduction Invites IRS Audit," Robert W. Wood, April 10, 2013

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