Previously, the IRS was mostly in the dark when it came to knowing who had money in offshore banking accounts. Thanks to new agreements between the United States and foreign regulators however, the IRS now has a significant amount of access to this information. In order to avoid getting audited, be sure to fill out the appropriate foreign bank account disclosure forms (FBAR). These forms are separate from your tax return, so they are easy to miss if not previously aware.
More and more Americans are becoming independent contractors and as a result are being considered as self-employed by the IRS. This means that they are responsible for paying regular tax and self-employment taxes on their non-wage earnings. Even if it’s just a weekend job to earn extra spending money, you’ll need to collect and report your 1099-MISC compensation on your tax return (as the IRS has a copy of that form) and file Schedule SE to pay in your share of the self-employment tax.
Since the Affordable Care Act (ACA) came to fruition, some people have been checking the ‘I had health insurance’ box on their tax returns when they really didn’t in order to avoid the ever-increasing penalties. It’s actually very easy for the IRS to verify this information, so checking the appropriate boxes the first time will save you the hassle of dealing with the IRS later.
Overstating your real estate prowess has no benefit when it comes to your taxes. Real estate professionals follow a different set of rules for reporting income and loss than people who rent out their properties as a side activity. If you are not a real estate professional, a rental loss is considered to be a passive loss, so you can only deduct the loss to offset against rental income gains. The remaining loss is suspended for use in later years. For real estate professionals, the properties reporting losses can offset other income in addition to rental income.
One may think that becoming a real estate professional is the logical step to combat the Passive Activity Loss rules, but be sure to pay close attention to what that really entails. You need to spend at least 750 hours a year working on your rental property in order to qualify for this deduction - meaning over 14 hours a week. If you are reporting other types of compensation from work in addition to the rental properties, the IRS will likely question the validity of your claim of being a real estate professional.