Are you worried about an IRS audit? It can be a highly stressful and time-consuming process, not to mention the potential financial exposure. This article explores some of the primary factors that could prompt a red flag and increases your chances of being selected for a tax examination by the Internal Revenue Service (IRS). With useful tips on how to lower or even avoid an audit altogether, this article will provide you with invaluable knowledge every taxpayer should know. So let’s dive right in to discover which missteps can trigger an infamous audit letter from the IRS.
Avoiding an IRS Audit: Top 4 Red Flags You Need to Know
Tax season can be a headache, especially if you end up facing an audit from the Internal Revenue Service. But the truth is, most tax audits are avoidable if you know how to report your income and expenses accurately. With the help of experts from TurboTax, we’ve compiled a list of red flags that can trigger an IRS audit you should avoid. So let’s dive in and uncover the top four things you need to watch out for when filing your next tax return.
1. Not reporting all of your income: The first red flag that can trigger an IRS audit is not reporting all of your income sources. This is one of the most common mistakes taxpayers make. This can be anything from side gigs or freelance work to rental income and more. Keep in mind that the IRS has access to your W-2s and 1099s, so if there’s any discrepancy between those forms and your tax return, you could receive an audit notice. To avoid this, make sure you keep track of all your earnings throughout the year and report them accurately.
2. Breaking the rules on foreign accounts: Many Americans have investments or bank accounts overseas, and if that’s you, you’re required to report them on your tax return. Failing to do so can be a red flag for the IRS, and it could trigger a full audit. If you have foreign accounts, make sure you understand the reporting requirements, including FBAR (Foreign Bank Account Reporting) and FATCA (Foreign Account Tax Compliance Act), and file the necessary forms on time.
3. Blurring the lines on business expenses: If you’re self-employed, it’s tempting to claim as many business expenses as possible to minimize your tax liability. However, this strategy can also attract unwanted IRS attention. If you’re deducting expenses that are unrelated to your business or putting more than you should, it could trigger an audit. Make sure you keep detailed records of all your business expenses and only deduct the ones that are reasonable and necessary.
4. Earning more than $200,000: Finally, if your income exceeds $200,000, you’re more likely to be audited by the IRS. The rationale is that higher incomes often come with more complex tax returns and thus are more prone to errors or discrepancies. If you fall into this category, make sure you and or your tax preparer, is extra careful when filling out your taxes to avoid mistakes that could trigger an audit.
The IRS is ever vigilant, and so should you when it comes to your tax returns. These four red flags should serve as a reminder to be meticulous when reporting income and expenses. It’s better to be safe and report everything accurately than risk falling under IRS scrutiny. By avoiding these red flags, you can reduce your chances of being audited and be confident that you’re on the right side of the law. With TurboTax, making sure that you have completed and submitted your tax return accurately should be a breeze!
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This article is intended for informational, entertainment or educational purposes only and should not be construed as advice, guidance or counsel. It is provided without warranty of any kind.