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RED FLAGS FOR IRS TAX AUDITS

Math Mistakes

All data about your income tax return gets entered into an IRS computer. If you have made a math error, you will automatically get the computer’s attention. To solve this, it may be a good idea to run it through a tax program to check your math.

Not reporting taxable income

Reporting income differently on your return than the people who pay it to you report it, via W-2 form and 1099s. The IRS computer will try to match all of your payers’ numbers with your numbers, and when they can’t then they audit you.

Discrepancies between tax filing position and filing positions for similarly situated taxpayers or private corporations

The CRA may compare corporate tax returns amongst similar businesses. Therefore, filing positions which are not similar with expectations for an industry, or which are not consonant amongst shareholders and their private corporations, may attract an audit.

You have a tax preparer with bad reputation

Sometimes your tax preparer is to blame for an audit. If a preparer promises unusually high refunds without asking to see proper documentation for deductions and credits, this should be a red flag for yourself!

Typos and Entry Errors

Very coming but still can get audited. If your numbers don’t match the numbers the IRS has on file, it raises a red flag. You’re legally responsible for the information on your return no matter what a preparer tells you, so make sure to look over your return before it’s sent to the IRS.

Making unusually high charitable deductions.

Charitable donations that don’t conform to expected values for your income level. Not only should you be careful to accurately claim your donations but you should also prove it by filing a 8283 Form for donations over $500.

An anomalously high income.

If your income is over $200,000, the audit rate is almost 4 times higher than the national average.

The Earned Income Tax Credit

The IRS said tax returns that claim the Earned Income Tax Credit are twice as likely to be audited.

Failure to report a foreign bank account can lead to severe penalties.

Make sure that if you have any such accounts, you properly report them. Make sure if you do then file Form 114 to report foreign accounts that total more than $10,000 and may also attach IRS Form 8938.

You own a business

IRS tends to look extra closely at taxpayers reporting businesses on Schedule C forms so if you own a business, report every single bit of income you’ve received. If you’re still worried about being audited, you may even want to reorganize your business as a corporation or so you don’t file a Schedule C (sole proprietorship)

Claiming business use of a vehicle

Just like home office is claimed on income tax returns, claiming business use of a vehicle always raises IRS auditing. So if the use is valid then certainly nothing to fear. So, keep good and thorough logs of how you employ your car. Free apps are now available for this.

By UNIKO Media Group