Reasons for Tax Audits
Let’s face it, the IRS can and probably already has on more than one occasion audited someone just because they can. However, that is more of an opinion than a statement of fact. The truth is, the IRS has the full authority to subject any American taxpayer to an audit of their recent tax return(s).
While it may seem like they are doing this just because they can, it is more likely there is a far less sinister reason behind the triggering of an audit against you. The IRS performs millions of IRS Tax Audits every year and there are many, many reasons why your tax return would be selected for an audit by an IRS agent.
If you have received a notice from the IRS letting you know that one or more of your most recent tax returns have been selected for an audit with an IRS agent, do not panic. There are a number of reasons why you could be audited, but it does not mean that you being accused of any crimes.
Call us for a free and confidential evaluation at 1-888-498-2937.
Top 10 Reasons for Tax Audits by the IRS
#1 Errors detected in your return – One of the biggest reasons for an IRS Tax audit being triggered is when an agent notices errors in your return. These errors will need to be cleared up by performing a face to face interview. Just be sure that you bring all of the documentation that you used to originally fill out your return.
#2 Making an excessive amount of money – While no one wants to be told that they make too much money, but according to statistics a disproportionate number of people who over a certain amount of money have been flagged for an IRS Tax Audit. If this is the case, you really do not have anything to worry about and should be able to answer all of the agent’s questions.
#3 Underreporting of your income – The IRS receives a copy of your W-2 that your employer gives you and they also receive a copy of any and all 1099’s that are sent to you. This means you must not report anything less than what would be reported to the IRS. Do not assume that the IRS will not know about your income and fail to report it.
#4 Being too charitable – While donating to your favorite charity what you believe you can afford is very noble, however, the IRS frowns upon the claiming of anything above a certain percentage of your income. Anything more can trigger an audit for excessive donating and claiming on your taxes. This is not meant to discourage donating to worthy causes, it is, however, intended to limit the claimed as a deduction.
#5 Home office deduction – While the IRS allows business deductions for home office use, it can be a bit tricky when it comes to the filing of your return. You need to be extremely careful when it comes to claiming home office deductions. The IRS does not want to prevent you from deducting the use of a room for a home office, but it needs to be the primary use for the room.
#6 Excessive business expenses – While it is not unusual for a self-employed person to have a number of expenses that should be reported, you need to be careful not to report expenses that are generally believed to be ordinary and necessary. If there is any doubt, leave it out and avoid the possible triggering of an audit.
#7 Claiming losses on rental property – Generally speaking, it is not acceptable to claim losses from rental property. However, there are exceptions and you should talk to a tax professional to avoid a possible IRS Tax Audit.
#8 Claiming losses from a “hobby” activity – In the eyes of the IRS, there is a big difference between a hobby and a business. This means you need to be sure that it is classified as a business before you go out and claim any losses from the activity on your tax return.
#9 Operating a small, all cash business – All cash businesses frequently equate to poor record keeping and that is one big reason why the IRS will often target them for audits. However, if you keep good business records you should not have a real problem meeting with an IRS agent and explaining your return in person.
#10 Too much rounding off of numbers – Using too many rounded off numbers looks like you have something to hide and you should limit it as much as possible. However, if all of your documents show like everything is rounded off you have no choice but to enter the information as it appears.
An IRS Tax Audit does not necessarily mean that you definitely did anything wrong, all it really means is that the tax return that you filed has some potentially questionable information and the IRS is going to ask you to justify them. You should at least contact a tax professional or hire our Tax Defense firm that will be able to represent you on your behalf in front of the IRS agent.
Call us for a free and confidential evaluation at 1-888-498-2937.
