To be honest, IRS audits are not automatically a bad thing. At its core, an audit is just the IRS’s way of double checking your numbers to ensure nothing in your return doesn’t quite add up. Yet many people tend to panic if they are chosen for an audit because they haven’t exactly been paying their taxes according to the law. Keep in mind that the IRS just conducts audits to make sure there is as little difference between what they are owed and what they actually receive. Audits may be random, but oftentimes, the IRS chooses who to audit because certain red flags stand out. Here are the top reasons the IRS will pull you from the crowd and decide to audit you.
Math Errors
Unfortunately, the IRS can’t trust everyone who says they made an honest mistake when filing their taxes. In order to avoid accidentally missed a zero, stay focused on the task at hand. We know that mistakes can happen, but double check your math, or even triple check it. With modern technology and lots of tax software available for you to file, there is little to no excuse for wildly incorrect numbers. Keep in mind that, even if the IRS does find your mistake to be accidental, you will be fined.
Neglecting to Report Income
One of the quickest way to make sure you are audited is to omit part of your income. You may have a full-time job and a freelance job on the side, but that doesn’t mean that you can only report your full-time job. Make sure that you submit all your income on the appropriate form! Freelance work and other extra income is usually reported on a Form 1099.
Claiming Too Much Charity
While we believe that you’ve been quite charitable this year, make sure you aren’t reporting any false donations. Those who donate regularly are usually given tax deductions, so we know how tempting it may be to document just a little extra from what you actually gave. However, you need to make sure you have the documentation that proves that you made the contribution you claim you did. Charities will provide you a receipt because they know you may want a tax break when it comes time to file.
Reporting Too Many Losses
If you are self-employed or are running your own business, we understand that you might find it simpler to hide some of the income by filing your personal expenses as business losses. Keep in mind that too many reported losses will most certainly raise some eyebrows. After all, if you lost that much income, how is your business staying open? Be honest about the losses your business experienced, and keep your personal taxes separate from your business ones.
Claiming a Home Office Deduction
A home office deduction can be quite tricky, as the IRS takes a very close look at these deductions. You may be tempted to give yourself deductions for items that don’t qualify, so make sure you are checking the law to see what applies and what does not apply to your situation. The IRS said that this deduction is only for those who use part of their home “exclusively and regularly for your trade or business.” Your office only counts if you have a space reserved solely for business. A laptop in your living room or at your dining room table won’t cut it. Only claim your home office as a deduction if there is a space of your home that is specifically for business purposes.
Reporting Rounded Numbers
Be sure that you never round your numbers! It’s not likely that you are reporting a business expense of $500, as your item may have actually been $475.25. You can round for $475, but it’s not likely that it was an even $500. While this isn’t outlandish, make sure that you have the documentation to prove it should the IRS come snooping for more information. The same goes for your income. It never hurts to document to the penny what you made, as the IRS is much less likely to be suspicious of these numbers.
Tax Law Offices
If you are in need of an IRS tax lawyer, be sure to contact Tax Law Offices today! We are proud to serve residents of Naperville, Wheaton, and the surrounding areas when they need legal assistance. If you have been contacted by the IRS and are worried about an impending audit, it is time to contact our team. We can help you understand why the IRS is auditing you and even represent you in court if it comes to that. Our professionals work tirelessly to understand your case and help you reach the best possible outcome. Contact us today and schedule your free consultation! We look forward to serving you and helping you navigate through this difficult time.