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IRS tax audits are a major hassle. They can cost you a lot of money, take a lot of time, and cause a lot of stress. While the IRS chooses many of their audits randomly, a large number of audits are targeted based on specific factors related to people’s tax returns and other behaviors. Learning some of the different reasons that the IRS will trigger an audit will help you minimize the risk that you will be audited this year, or in the future.
Failing to Report Income
The IRS generally knows how much you make each year. This is because your employer or whoever pays you is required to report your income to the IRS on either a Form 1099 or a Form W-2. If you don’t report any or all of your income on your tax return, and the IRS will notice through their computer matching program, and this may cause an audit. Additionally, the IRS can assess hefty penalties against you for failing to report all of your income.
Excessive Charitable Donations
Giving to your favorite charity is a very noble thing, and will also get you some great tax deductions. If you are giving well-above the average amount for people with your income, however, it can trigger an audit. Claiming all your charitable donations is a good idea, but only if you have the necessary supporting documentation.
Reporting High Losses (Especially Every Year)
There are times when people need to claim a loss on their taxes. Losses can help offset gains and reduce the amount of taxes you owe. This can apply to both business and personal situations. For individuals, you can claim gambling losses, losses on lotteries, and other types of losses. Businesses, of course, can claim a loss on the business itself. The IRS tends to look at losses closely, and if you are claiming losses year after year, it will be looked at with extra scrutiny.
Using Only Round Numbers
When the IRS is reviewing numbers on your tax returns and supporting documents, using only round numbers can be a red flag. For example, if you are deducting business expenses for services your business used and they are all expenses such as $500, $350, or $100, it may look suspicious. The IRS knows that prices tend to not be even numbers like this. Claiming precise expenses will help ensure your returns don’t catch the eye of an IRS agent.
Using the Home Office Deduction
The home office deduction can help save you a significant amount of money if you run a business out of your home. That being said, this is one of the most often abused deductions available today. Because of this, the IRS often flags those who take this deduction for an audit. If you’re certain that you qualify, it makes sense to claim it and deal with the elevated risk. If you’re not 100% positive, however, you may not want to take the risk.
If You Are Audited, We Are Here for You
While there is a lot you can do to avoid an audit, it is impossible to eliminate this risk. If you are notified that you are being audited, we are here to help. We have extensive experience working with the IRS and can help protect your rights. Please contact us to schedule a consultation today.
Weisberg Kainen Mark, PL
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