Can Clients Itemize on Form 1040 After the Tax Deadline?by
In two previous columns, I explained how I use “tax tidbits” to enliven conversations when talking taxes with clients or speaking to groups like retirees. The tidbits discuss amusing court decisions and tactics that trim taxes.
Below are a few more I would like to share with you:
The Tax Court sustained exaction by the IRS of a fraud penalty against a taxpayer who deposited business receipts into two bank accounts but reported income from only one.
You aren’t stuck if you take the no-questions-asked standard deduction and later discover it would have been more advantageous to “itemize” on Form 1040’s Schedule A and list payments for things like mortgage interest, state and local taxes, contributions and medical care. Go to irs.gov or call 800-TAX-FORM for Form 1040X. Use it to amend your return for the year in question, and switch to itemizing.
An IRS ruling concedes that a theft-loss deduction can be claimed by a corporation for ransom payments it made to the kidnappers of a corporate officer and shareholder (Letter Ruling 7946010).
Take all the withholding exemptions you’re entitled to on your W-4 instead of letting the IRS do the savings for you and then squandering it at tax refund time.
A taxpayer has reportable income, ruled the IRS, when a return preparer’s blunder causes the individual to be slapped with an estimated tax penalty and the preparer pays it.
While the IRS is understaffed and underfunded, it will continue to challenge deductions claimed on returns that are open under the statute of limitations for audits.
So just how much time does the IRS have? Usually, the deadline for the agency to undertake an audit is three years from a return’s due date—April 16, 2021 in the case of a return for 2017 with a due date of April 16, 2018, for most persons. (When the due date falls on a Saturday, Sunday or legal holiday, the due date is the next business day.)
The tax code is more generous when there’s an omission of income and it exceeds 25 percent of the income reported on the return. Then the IRS gets six years to check. And it has forever and a day when no return is filed or the agency establishes that the return filed is fraudulent.
When the IRS audits returns and questions deductions for car expenses, it won’t challenge taxpayers’ standard-rate deductions (whether they drove for business reasons, to obtain medical care or to do volunteer work for schools, religious institutions and other philanthropic organizations), provided they’re able to substantiate the miles driven. The agency disregards actual expenses. So I warn clients they need to keep glove compartment diaries or other records in which they list the details of when, how far and why they went, along with their outlays for parking and tolls.
The IRS does impose some restrictions on business driving: For instance, fees people pay to park their cars at their place of work are non-deductible commuting expenses.
The agency also cautions that the cost of travel between home and work isn’t converted from non-deductible commuting to deductible medical travel merely because illness or disability rules out using public transportation (Revenue Ruling 55-261).
Look for more tidbits in my fourth and final column next week.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 275 and counting).