There’s nothing inherently bad about an IRS audit. It’s simply when the Internal Revenue Service checks a return for discrepancies; as long as the taxpayer tells the truth, they don’t have to worry. While some audits are completely random, the IRS often chooses taxpayers based on their suspicious activities. Below are seven signs that an audit may be forthcoming.
When the IRS conducts an investigation, an apology won’t cut it; it’s far better to avoid making mistakes in the first place. Don’t forget to add everything up, and double-check figures for accuracy. While mistakes happen, it’s important to go over things more than once, because the fines will be the same whether or not the mistake was intentional. If a taxpayer’s math isn’t what it should be, professional Income Tax preparation in Manhattan may be the way to go.
Failing to Report All Income
Not reporting income is an easy path to an audit. A freelancer may be tempted to submit only their W-2s and keep their 1099s under wraps, but that’s a mistake. The IRS is already aware of the income listed on a person’s 1099, and it’s inevitable that they’ll discover the omission.
Excessive Charitable Claims
Charitable donations come with deductions, but it’s important to report these donations accurately. If a taxpayer doesn’t have the right documents to prove the legitimacy of a contribution, they shouldn’t claim it. After all, claiming a $30,000 donation on a $75,000 salary is bound to raise a few eyebrows at the IRS.
High Business Expenses
Reporting too many business expenses is another good way to get audited. To be eligible for deductions, purchases must be necessary to a person’s line of work. For instance, professional artists can claim paint and supplies, and a person who only paints for fun can’t claim the deduction.
Home Office Deductions
These deductions are laden with fraud, and many people try to give themselves deductions for non-qualifying expenses. The IRS defines a home office deduction as being for those who use part of the home exclusively for business. Unfortunately, answering a random work email while sitting in the living room doesn’t make one eligible for the deduction.
While the IRS won’t disclose exactly how they decide who is audited and who is left alone, the above mistakes can increase one’s chances of an audit. For professional advice and Income Tax preparation in Manhattan, call today or visit Rawcpa.com.