2011’s IRS Hot Buttons for Form 1040

As you begin preparing for your 2011 taxes, it’s important to be aware of the areas that are being scrutinized this year.

First, here’s a quick single-stop index of terms for you from Fairmark.com:

Form 1040 and Attachments

Form 1040	U.S. Individual Income Tax Return Form Instructions Use this form if you can't use Form 1040EZ or Form 1040A.
Schedule A Schedule B	Itemized Deductions Interest and Ordinary Dividends Form Instructions The IRS combines both forms in a single electronic file, and also combines the instructions for both forms in a (different) single electronic file. Schedule A: For more information see Your Itemized Deductions. Schedule B: Most taxpayers don't need this schedule unless they have $1,500 or more of interest income, or $1,500 or more of ordinary dividend income.
Schedule C	Profit or Loss from Business Form Instructions Use to report income and deductions from a sole proprietorship (a business or profession of your own). For more information see Your Business.
Schedule C-EZ	Net Profit from Business Form & Instructions You can use this easier version of Schedule C if you don't have a loss, have business expenses of $2,500 or less, and meet other requirements set forth at the top of this form.
Schedule E	Supplemental Income and Loss Form Instructions Use to report income and deductions from rental real estate, royalties, partnerships, S corporations, estates and trusts, and residual interests in REMICs.
Schedule EIC	Earned Income Credit Qualifying Child Information Form & Instructions File this schedule if you claim the earned income credit and you have one or more qualifying children. For more details see Pub 596 below.

 

Form 1040 Red Flags

Inconsistencies or incomplete information in the following areas are hot buttons on Schedules A, C, and E that are likely to earn you a closer look, either from your tax professional or from the IRS:

Schedule A

• Unreimbursed employee business expenses claimed on Form 2106;
• Mileage;
• Travel, meals, and entertainment expenses that require documentation; and
• Receipts for cash charitable contributions and adequate documentation of noncash contributions.

Schedule C

• Gross receipts not fully reported;
• Expenses must be ordinary and necessary; and
• Expenses must be paid or incurred during the taxable year.

Schedule E

• Rental income and expenses not property reported;
• Depreciation not properly calculated; and
• Passive activity and basis limitations not properly calculated.

It’s never too early to start preparing for the April 15^th deadline. When do you usually get started with your taxes?

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