No one wants to open their mailbox and discover that the IRS is launching a formal audit against them. It can happen to anyone, but here are some clues that you’ll be more likely to get audited at some point in the future when an auditor shows an interest in your tax returns.
In this blog, you’ll learn more from an experienced Georgia tax attorney about some of the most common reasons that clients end up coming to the office with an audit letter and seeking support.
There is a reason that it pays to have experienced professionals assist you with your tax return and one of the easiest things you can avoid are math mistakes on your taxes. Reviewing them carefully and ensuring that you’ve captured all proper data before putting together a tax return is critical. Don’t accidentally write the wrong numbers or make mistakes because you can count on an auditor to catch these details.
Regardless of whether or not the mistake was intentional, you could still find yourself facing significant fines. If you’ve been relying on tax preparation software but your tax situation has gotten more complicated in recent years, this is the perfect opportunity to schedule a consultation with a professional. You’ll decrease your chances of making unfortunate errors that can find you facing a serious audit.
Reporting Too Many Schedule C Losses
If you are self-employed it’s critical to have the right professionals guiding you through every aspect of growing your business. You might be tempted to categorize personal expenses as business expenses or if you are cross dipping across multiple accounts without realizing it’s very simple for this to happen.
Too many reported losses can trigger the IRS to audit you because they’ll begin to wonder how you are able to continue paying business costs. The same goes with deducting far too many business expenses. In order to categorize any purchase you make during a given year, that expense must be both necessary for your business and ordinary. In order to determine whether or not you have expenses falling outside of these categories, IRS auditors will ask whether or not the purchase is accepted and common in the business or trade.
Claiming a Home Office Deduction When You’re Not Entitled to It
Unfortunately, only certain people are eligible to claim the home office deduction and it is very specifically defined by the IRS as those who exclusively use their home office for the regular trade of a business.
Sitting in your living room and answering some business related emails every once in a while, doesn’t qualify you to claim that part of your space as deductible. It makes it much easier if you have a specific room or section of the home set aside for business purposes.
Whether it’s intentional or not, the IRS wants every dollar accounted for on your tax return and excluding a couple of dollars here and there to decrease your overall taxable income and tax bill can be very problematic and lead you to get audited. The IRS gets everything from Form 1099 copies to copies of your W2.
They also receive details about foreign bank accounts, alimony and K1 income so it’s better to just be upfront and provide all details about all income received during the year. If you have a question about whether or not something qualifies, run it by your tax professional first. Leaving out any bonuses of employment income or wages can greatly increase your audit risk.
Incorrect Filing Status
When making the right choice with filing your taxes, you need to decide about filing status. A sudden change in your previous filing status can lead the IRS to at least have some questions, such as if you are recently divorced and file as single head of household. The IRS may simply be seeking more information to clarify whether or not this change was intentional and accurate but you can anticipate that it might increase your chances of being audited overall.
Want to review your existing situation and determine if there are things you can do to decrease your audit risk? Set up a strategy session today to learn more.