Most people panic when they are notified they are being audited by the IRS. The IRS audits only slightly more than 1% of all individual tax returns annually. Some of these audits are at random, but the IRS often selects taxpayers based on suspicious activity. An IRS audit is a review or examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws. The chances of being audited increases depending on many factors, such as your income, the types of deductions or losses you claimed, the type of business you run and whether you own foreign assets.
You should be aware of the top tax return details that typically lead to an audit:
Failing to Report All Taxable Income
Unreported income is the easiest mistake to avoid, but can also be the easiest to overlook. Any institution that distributes an individual’s income will report it to the IRS. Form 1099 also reports the nonwage income you receive from freelance work, stock dividends, and interest to the IRS. If you omit wages, self-employment income, or bonuses, you increase your risk of being audited. You should always be truthful and report all of your income on your tax return.
Errors and Omitted Information
When it comes to filling out your tax return, you need to pay close attention to the details. Unintentional mathematical mistakes will lead to a costly audit and potential fines. If your math skills are sub-par, consider using a tax preparation software program or a local tax preparer to avoid unfortunate errors.
Home Office Claim
People who run their businesses from their homes are permitted to claim a home office on their returns. However, it is extremely difficult to meet the criteria for the home office deduction, as you must section of part of your home strictly for business purposes only. It is often tempting to claim a home office deduction or to give yourself a deduction for expenses that don’t technically qualify, which often leads to an audit.
Excessive Business Expenses
The IRS scrutinizes your business expenses, especially if you report too many expenses or if they do not seem to make sense. To be eligible for a deduction, business expenses must be ordinary and necessary to your line of work. For large expenses, you should keep a receipt in the event you need to prove your claim.
Taking Large Charitable Deductions
If you have made significant donations to a charity, you are eligible for a deduction. However, if you report excessive or false donation amounts, you are putting yourself at risk of being audited. Always report the accurate amount you donated to a charity. If you did make an unusual or large contribution, you should keep a receipt to submit as proof along with your return.
Wrong Filing Status
Choosing the correct filing status is very important to avoid being audited. This decision can be difficult for marries couples, especially if one spouse does not work.
Hire An Atlanta Tax Attorney Today
Receiving notice that you are being audited by the IRS can cause anxiety and distress. Many people who make honest mistakes end up with a bill for additional taxes, interest, and possible financial penalties. Don’t face the IRS on your own. To schedule a Free Phone Consultation and case evaluation, please call our office today at 404-937-1414. You may also schedule a consultation online.