Tax Tip Tuesday Tip#3; Scott Curley, Co-CEO/Partner of FinishLine Tax Solutions, a nationwide tax relief services provider shares tips about IRS Audits.
An IRS audit reviews an individual's or business's financial accounts to check if the information is reported accurately. The IRS can conduct a field audit at your home, office, or accountant's office. Sometimes the IRS conducts surprise audits, but most of the time, The IRS selects taxpayers based on suspicious activity.
Before you start preparing for tax season, take a look at some red flags likely to land you in the audit hot seat.
1. Math Errors
Math errors include subtraction, addition, multiplication, or division error, a transcription error in the same form or another form, an inaccurate use or selection of information from tax tables, and claiming credits or deductions exceeding limits.
To steer clear of mistakes, double-check your numbers. If you have too much on your plate, get professional help or use tax preparation software to avoid errors.
2. Unreported Income
You may be tempted not to report part of your income to decrease your tax liability, but beware-the IRS is watching your every move.
The IRS receives copies of your income reporting forms (including W-2, Form 1099-INT or 1099-DIV, and Form W-2G).
The IRS also receives information about your K1 income and foreign accounts. If you fail to report any income, an IRS agent may soon show up at your door.
3. Overstating Deductions
If you report false deductions, the IRS will become suspicious. Whenever you make a large donation, get a receipt so you can substantiate your claims. Keep receipts of business expenses. If you donated an item valued at more than $500, submit Form 8283 with your tax return.
4. Claiming Home Office Deductions
A self-employed taxpayer can deduct their home office expenses from their business income only if their home office qualifies (if they use it regularly and exclusively for their business).
Many taxpayers who claim home office deductions get the rules wrong. Fraudulent taxpayers try to claim deductions for expenses that do not qualify.
The IRS comes down heavily on people who over report deductions. If you try to claim a false deduction, the IRS can charge you with tax fraud.
5. Claiming Earned Income Tax Credit
The Earned Income Tax Credit or EITC is targeted at low-income taxpayers. If your investment income exceeds $3,650, you do not qualify for the EITC. Claiming the credit will trigger a tax audit.
Can't make heads or tails of tax rules? Let FinishLine Tax Solutions help. We offer end-to-end tax relief solutions. We will help you identity tax-saving investment avenues and ensure tax compliance.