An IRS Audit is a review carried out by various IRS agents to ensure that all information and accounts in the filed taxes are reported correctly. It makes sure that you’re following all tax paying rules and don’t have any discrepancies in your return.
If you’ve filed your taxes properly, there is very little chance for you to receive an IRS audit notice. However, there could be certain red flags in your returns which might work against you and land you in trouble.
We’ve mentioned the 8 biggest red flags which are likely to land you an IRS audit below.
1. Failure In Reporting Income
The IRS gets all copies of 1099s and W-2s and its computer system is pretty good in matching the form numbers with income mentioned in your return and a mismatch sends red flags to the IRS and causes it to spit out a bill.
If you have any issue in reporting the income, you should get the best tax attorney in Los Angeles who can update your income and file a correct form with the IRS.
2. Making Very High Or Very Low Money
If you have an income of over $500,000, there’s a high chance that the IRS would target you. Since they are not going to waste their time by targeting many individuals with lesser income. But instead they focus on businesses who make the most money and are a source to collect more taxes.
Also, if your returns show very low income then that too triggers the IRS lens.
3. Taking Higher Deductions Or Credits
If the deductions or credits claimed by your business are higher than average, there is a high chance that you will receive an IRS audit notice.
You need to make sure that you have proper documentation explaining the deductions or credits which will help you in keeping a clean slate.
4. Large Charitable Deductions
We understand that charitable deductions give a warm and fuzzy feeling to us, but a huge sum of charitable deduction signals red flags to the IRS.
It is because the IRS knows the amount of donations people with a specific income level generally make. If you’ve made some property or in-cash donations, you need to make sure you have documents to support your claims.
5. Owning And Running A Business
The IRS especially audits self-employed or businesses owned by individuals because they feel these individuals claim higher deductions and report lower income.
Sole proprietors and freelancers are entitled to a lot of tax deductions which includes home office deductions, mileage deductions, meals, travel and entertainment deductions which are deducted from the earnings to calculate taxes.
So, if you are a business owner and report all the allowed deductions then it raises red flags since the IRS believes that you might have used these expenses for personal use at some point.
6. Claiming High Rental Losses
Real estate professionals and people dealing in properties can easily write-off high rental losses.
But if you claim typically larger real estate rental losses, the IRS is most likely to scrutinise you.
7. Claiming Trading And Hobby Losses On Schedule C
If you’ve reported multiple losses on Schedule C including hobby and day-trading, then you are very likely an audit target for the IRS.
If you day-trade, you need to continuously buy and sell securities to make sure the IRS knows that you make money on a short-term basis.
But if you have a business that sounds more like a hobby with other income sources and you still claim high losses, it would result in hearing from the IRS.
8. Failing To Report Another Business Or Accounts
If you have any other business than the one you’re filing taxes for, and accounts in other foreign countries then you should clearly report these in your taxes.
And many side businesses, especially ones like a legal marijuana trade, have big income tax issues as these businesses are prohibited from claiming business write-offs on their returns. If you have more than one account and business, report it to the IRS to avoid an audit notice.
The post 8 Biggest Red Flags Likely To Land You An IRS Audit first appeared on Feedster.
from Feedster https://www.feedster.com/taxes/238226/
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