The IRS conducts tax audits to review the details provided by taxpayers. This procedure involves revising your accounts and financial documents to verify that you provided the correct information. The IRS may also send a representative to your business for a face-to-face examination.
Since an IRS audit can lead to business closure and penalties, you should avoid it. Here, we discuss five main reasons the IRS may request this procedure. We will also cover how professional tax preparation and legal representation can help you deal with audits.
1. Incorrect Data
Providing incorrect figures is a significant reason why the IRS audits taxpayers. Such an issue may occur when you truncate decimals leading to calculation differences. It may also happen when you enter a number wrongly or miss some figures, especially zeros.
Another data issue that may lead to an IRS audit is providing the wrong social security number. This mistake often occurs when transferring figures from other documents.
Filing your returns online can avoid data mistakes and IRS audits. This method allows you to upload some information from your W2 forms. Hence, you can easily avoid typing and calculation errors.
2. Many Charitable Donations
Charitable donations qualify you for discounts on the taxes you owe. The IRS will counter-check your forms to determine eligibility if you claim such deductions. They may then request an audit if your income and the donations made in a particular duration do not match.
Avoid IRS audits related to charitable donations by providing the correct information. Further, ensure you have all the documents to prove transactions before claiming deductions.
3. Unreported Income
It may be tempting to eliminate some income when filing taxes. Unfortunately, such an issue will lead to an audit since the IRS receives income reports from your employers.
Before filing federal and state taxes, calculate the total amount earned from various sources. These include:
- Employment bonuses
If you are a business owner, your revenue may differ annually based on performance. Always confirm the income difference with the previous years to avoid raising suspicion and prevent unnecessary IRS audits.
4. Significant Business Expenses
Reporting significant business expenses is another reason the IRS may audit you. For instance, if you indicate that you spent more than three-quarters of your earnings on operation costs, the IRS may need to confirm this information.
Track business expenses and transactions to ensure you have accurate figures when filing taxes. Besides, confirm all provided details before submitting your return forms. These measures will help you avoid costly mistakes and prevent business closure during an audit.
5. Including a Home Office Deduction
If you use some parts of your home exclusively for business purposes, you may qualify for a home office deduction. However, you may not be eligible if you do not work from home often and use the rooms for other activities.
Since some taxpayers may claim home office deductions to reduce the tax owed, the IRS often flags such cases. As a result, they may audit your records to determine if you have business premises. This step also allows them to assess if the measurements you provided for your working spaces are credible and quality for a deduction.
How Legal Representation Can Help With an IRS Audit
Dealing with an IRS audit can be tricky without professional help. Getting legal audit representation allows you to avoid the stress associated with the process. An expert will help you prepare all the documents the IRS needs to verify your tax information.
More ways the specialist may assist are:
- Communicating with the IRS
- Representing you during meetings
- Filing for an audit reconsideration
Contact FinishLine Tax Solutions for Audit Representation
Dealing with an IRS tax audit can be confusing, mainly if the issues stem from an error. At FinishLine Tax Solutions, we will represent you during this process. Our professionals will also offer legal guidance and recommend ways to avoid an audit in the future. Call us today for audit representation.