An IRS tax audit stands out as one of those events in life that people typically want to avoid. No one wants to sit through a meeting with this government agency and be told that they owe more money in taxes. However, you may be making mistakes when you file taxes that will inevitably lead to the IRS singling out your return for scrutiny. When you want to avoid running afoul of the government, you should realize the top tax return details that typically lead to an audit.
1) Errors and Omitted Information
It may be true that mistakes happen in life every now and again. However, filing your taxes should be one of those times when you play close attention to details. If you make a mathematical error, it will more than likely be noticed by the IRS, leading to your return being audited.
Before you submit your return either by mail or electronically, you should make sure that you have included all of the required information. You should also make sure all of your numbers add up and that you have not made a simple mistake that could lead to a costly audit later.
2) Not Reporting Income
Some people think to boost their refunds by not reporting all of their income. However, the IRS receives the same 1099s and W-2s as you. It knows how much income you made last year and expects you to report it accurately.
If you leave out wages, self-employment income, bonuses and other monetary information, you contribute to your own audit risk. When you want to avoid being audited, you should be truthful and report all of your income on your return.
3) Charitable Donations
Every taxpayer is encouraged to donate to charities and report these donations on their taxes. However, if you report unusual donations amounts that do not match the amount of income you make, you could put your return at risk of being audited.
Rather than embellish your charitable donations, you should report the accurate amount that you actually gave to your favorite charities. If you did make such a large contribution, however, you should keep a receipt and submit proof of the donation along with your return.
4) Excessive Business Expenses
Along with unusual charitable donations, the IRS will scrutinize business expenses that do not seem to make sense. You should report your business expenses on your return. However, you should make sure that they make sense and that they are accurate.
Making even a small mistake on this detail could cause the IRS to audit you. As with donations, if you do in fact have such large expenses, you should provide receipts to prove your case.
5) Home Office Claim
People who run their businesses out of their homes are allowed to claim a home office on their returns. However, meeting the criteria for this claim can be extremely difficult and more often than not leads to an audit.
It can be a challenge for you to prove that the primary use of one room in your home is used for business purposes. This inclusion on your return more than likely will lead to an audit to make sure that you are genuinely entitled to this claim.
6) Round Numbers
Just as you should not make mathematical errors on your returns, you also should not round up your numbers. Rounded numbers and perfectly even sums make your return seem suspicious.
The IRS expects to see odd numbers and decimal points. When you want to avoid an audit, you should report the numbers as they actually are and avoid rounding up or estimating your totals.
7) Wrong Filing Status
Choosing the right filing status is important to avoiding an audit. This choice can be difficult for married couples, especially if one spouse does not work. If you are confused about what status to claim, you should consult with a tax professional.
Likewise, changing your status abruptly can signal to the IRS that perhaps something is amiss with your return. For example, if you are recently divorced and plan to file as a single or head of household rather than married filing jointly, you may invite the scrutiny of your return.
8) Earned Income Credit
For many low-income families, the Earned Income Credit, or EIC, is a boon when they file their taxes each year. They essentially get credit for their children on their tax returns and receive refunds that can often be quite substantial.
Even so, the EIC can cause the IRS to audit people who claim this credit. Because of the amount of money paid out in EIC refunds, the government must know that only those who genuinely qualify receive it. An audit helps protect this tax credit and its intended purpose.
Being audited often is not a welcomed experience. You can keep your returns audit-free by knowing what details typically cause the IRS to give returns a second look and audit the people who filed them.