Many taxpayers are afraid of the term “tax audit.” But it’s nothing to get scared about! It’s just the state authority or the IRS double-checking your accounts so that there is no discrepancy in your tax returns. If you have calculated your numbers correctly, then you don’t have to worry about anything.
However, tax audits can be quite random. IRS may select any taxpayer for audit if they spot any suspicious activity of a taxpayer. However, when you are filing your tax returns this season, you better not do the following as it can land you in hot water with the IRS:
Making Calculation Errors
You are only human and you can make mistakes. But when you are dealing with the IRS, your mistakes will cost you. So, while calculating, don’t overlook any number or mistake a 3 with an 8. To be on the safe side, triple check your calculation. The IRS will fine you for your mistake, whether it was intentional or not.
Not Reporting Certain Parts Of Your Income
One way to get into trouble with the IRS is when you conceal your income. Let’s say you are working as a herder on a farm. You also take up a freelancing job to writing articles for online publications. Now, you may want to just submit the W-2 Form which keeps the records of your herding job and conceal your freelance writing income. However, you will be highly mistaken if you think you can get away by not submitting the Form 1099 which keeps a record of your non-wage income derived from stock dividends, freelancing, etc. While you might think you’ve got away with it, the IRS already has a report of your 1099 from the publications you work for. You will get caught red-handed if you conceal your income.
Claiming To Have Made Many Charitable Donation
If you have made donations to different charities, then you will get deductions. However, don’t make claims of false donations. If your documents of proof cannot back up your claims, then you could be in big trouble with the IRS for such discrepancies
Reporting Excess Losses on Schedule C
If you are self-employed, then you might feel that there is no one to monitor you or your income. You may believe that you are in a safe space and so you can file your personal expenses as business expenditure. Before doing anything of that sort, think it through. The IRS will be curious as to how your business can stay afloat if you have so many losses, as your revenue will be far less than the cost incurred. They have all the details about deductible business expenses in IRS Publication 535.
Reporting Excess Of Work Expenses
Another way in which fraudulent taxpayers try to increase their deductions is by increasing their work expenses. Now, you can be eligible for deductions if the purchases that you make are either ordinary or necessary to your line of work. If you are a professional painter, then buying a canvass and paintbrushes will be deductible since it is your line of work. But if you are a doctor, then art supplies bought to pursue your hobbies are not considered for deduction. They are not necessary for your work. And doing so will lead the IRS to smell a rat.
Claiming Home Office Deductions
Most fraudulent taxpayers try to take advantage of home office deductions. According to the IRS, home office deduction is only for those people who use a portion of their house “exclusively and regularly for your trade or business.” It has to be used for work alone. Answering your work mail from home does not make your eligible for home office deduction! Only claim home office deduction if you use a segment of your home, only for work purposes.
Rounding off numbers
The numbers present on your 1040 form and any other supporting documents will not probably be simple multiples of $100s. While a little bit of estimation is allowed, make sure you are very careful and precise with it. Round the numbers to the nearest dollar – not the nearest hundred. As a professional artist, if you claim to have bought a canvass for $495.25 then round it off to $495, not $500. A clean $500 may make the IRS ask for evidence.
We hope this article explains why the IRS may audit you. If you have more queries, feel free to drop in a mail at firstname.lastname@example.org or call us at (888)-482-0279 for on-call consultation.