Here is a hot spot on clergy returns that can raise the chances of scrutiny by the IRS. Ever wonder why some tax returns are audited by the IRS while most are ignored? Well, there’s a whole host of reasons to this age-old question. The IRS audits only about 1% of all individual tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that every clergy return will be picked for an audit. However, the chances of being audited or otherwise hearing from the IRS can increase depending upon various factors, including whether there is omitted income, the types of deductions or losses claimed, certain credits taken, and math errors, just to name a few. Although there’s no sure way to avoid an IRS audit, you should be aware of red flags that could increase unwanted attention from the IRS. Here is one of the most noticeably audit red flags for clergy: Claiming charitable deductions This comes up again and again because the IRS has found abuses on returns, especially with those taking larger than average deductions. We all know that charitable contributions are a great write-off. However, if your charitable deductions are disproportionately large compared to your income, it raises a red flag. Due to the large percentage of charitable contribution in comparison to their income, many clergy fall into this category. The IRS can tell what the average charitable donation is for a person in your tax bracket. This should not discourage you from claiming your charitable deduction. But, make sure you keep all your supporting documents, including receipts for cash and property contributions made during the year. There’s no reason to ever pay the IRS more tax than you actually owe.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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