There’s nothing sinister about an IRS audit, but that doesn’t stop taxpayers from dreading them. Auditing is the IRS’ way of double-checking returns for discrepancies, and honest taxpayers have no reason to worry. The IRS does audits to minimize the gap between what they’re owed and what they receive. Some audits are done randomly, but many taxpayers are selected due to suspicious activity. While it’s not recommended to defraud the IRS, there’s no reason to pay more than necessary. Below are several red flags that can increase a taxpayer’s chances of an audit.
The simplest way to avoid an audit is not to make mistakes on a tax return. Distractions are common and errors happen, but filers should double-check their numbers if they’re doing their own taxes. The fines are the same whether or not the mistake was made intentionally. Hiring a local tax preparer can help taxpayers avoid simple but dangerous errors.
Failing to Report Additional Income
Another easy way to be audited is to not report income. It may be tempting to leave out income made on the side, which is normally listed on Form 1099. However, the Internal Revenue Service already knows about this income, and they will eventually discover the omission.
If a taxpayer makes substantial charitable contributions, they can receive tax deductions. Most who itemize their deductions claim charitable donations as roughly three percent of their income. Filers should not claim a donation if they lack the documents to prove its validity.
Claiming Home Office Deductions
This area is full of fraud, and many are tempted to deduct expenses that do not qualify. The IRS defines the deduction as being reserved for those who use part of the home exclusively for work. Answering the occasional work call in the living room doesn’t make that room eligible for a deduction, and filers should only claim it if they can back up their claims.
While an audit isn’t something for an honest taxpayer to be afraid of, many dread them. Making certain mistakes can increase a taxpayer’s chances of an audit, but there are ways to reduce the risk. By following the tips above and visiting bctax.com, a filer can minimize the risk of being selected for an IRS audit.