Depending on your financial and earning situation after you retire, you may have to continue filing taxes each year. The fact that you are retired does not mean that the IRS cannot or will not audit you. You could find yourself subject to an IRS audit if you include these missteps on your tax returns.
Significant Increase in Your Income
As a retiree, you have the right to increase your income. However, when the amount of money that you claim as income goes up significantly, the IRS may wonder from what source you derived that extra money or in what manner that you earned it.
In fact, statistics show that if you claim $200,000 or more in income that your chances of being audited rise exponentially. While it is legal for you to earn a higher income as a retiree, it is important that you show proof to the IRS as to how you earned or obtained that money.
Failing to Report Income
Just like a higher than normal income may alert the IRS to your return, so will failing to report income on your tax returns. The IRS receives the same tax forms as you do and knows how much money you earn each year.
When you fail to report all of the money that you earned or received during the year, you could find yourself subject to an audit. You also may have to pay penalties and fines in addition to the taxes that you owe on the unreported monies.
Lots of Deductions
The IRS encourages you to claim deductions to which you are rightfully entitled. However, when you claim a disproportionately number of deductions for the amount of money that you earn, you may inadvertently invite the IRS to audit you.
If the deductions are legitimate, you should provide ample proof of the expenses during the audit meeting. This proof could help you escape having to pay fines and penalties for dishonest behavior.
Large Charitable Donations
Donating to charity can be a viable way to lower your tax burden each year. When you report a higher than usual number of donation or donation amounts on your return, you may signal to the IRS that something could be amiss with your taxes.
If you are audited, it is important that you back up the amounts that you reported on the return with receipts for your donations. If you donated a car, jewelry, or other property, you should also provide proof of the appraisal before transferred ownership to the charity.
Failing to Report Gambling Wins
Many retirees like to spend time at casinos, playing bingo, and other gambling venues. When you hit it big, however, you must report your earnings to the IRS.
The casino will take it upon itself to report your earnings on your behalf to the IRS, in fact. Even so, you still must file a Schedule C and report those winnings as extra income that you accrued that tax year.
- Poker chips and cards
- Hotel room expenses
- Meals at gambling tournaments
You cannot claim these expenses for a leisurely day of gambling at your local casino, however. If you attempt to deduct such costs, the IRS may also audit your tax return.
You may have to continue filing tax returns well into your retirement years. You can avoid the attention of the IRS and a possible audit by knowing what missteps to stay clear of as you file your taxes.