Tag Archive IRS Audit

Could you get audited in 2014 ?

The IRS is on the prowl this year and they could be coming after you. The Internal Revenue Service is able to more easily identify possible red flags that will trigger audits thanks to computerized checks and an improved detection system.

Audits are normally triggered when a tax return is filed containing something unusual such as a deduction that is above average. The taxpayer has nothing to worry about as long as they are able to properly defend the filings with documentation and logic. Unfortunately, if this happens, you will still have to deal with the added stress and the response time.

Below are 9 signs that you might get audited this year.

You Forgot To File One Of The Tax FormsAll tax forms sent out to taxpayers are also sent to the IRS. If you forget to file one of the forms you received with your taxes, the IRS might flag your tax return to be reviewed.

You Are Self-employedAlthough it does not seem fair, when a taxpayer is self-employed it can raise red flags. The best advice, if you are self-employed, is to keep track of all of your expenses and all documentation so you are able to defend all credits and deductions that you claim.

You Made A Lot More Money In 2013Major changes in this year’s income is a red flag for the IRS. It can mean that the taxpayer has under reported earnings in the prior year.

You Claimed Losses From One Of Your HobbiesIt is not legal to write hobbies off as business expenses. For example, if you make jewelry as a hobby, you cannot deduct material costs and tools. Now if you were selling the jewelry you made, it would be considered a business and you would be able to deduct those costs. Remember, a business is an endeavor you enter into and conduct with a reasonable expectation of making money.

You Were Exceedingly Charitable This YearThe IRS looks for taxpayers that have inflated donations to charitable organizations. They pay particular attention to people who have donated close to $500 because that is the limit that can be deducted without filing Form 8283.

You Have A Bank Account OverseasThis year, the IRS has additional requirements for taxpayers with banks accounts overseas. If you fail to report one of the requirements, it could be an audit trigger.

The Numbers On Your Forms Do Not Match – If you make a mistake with the numbers on your forms or the amounts do not add up, chances are the IRS will notice and will review your return carefully for any other discrepancies. Make sure you review your return carefully before filing.

Your Deductions Include Expensive Entertainment And Meal CostsThe IRS usually checks high business deductions to ensure the business expense is legitimate.

You Deducted High Home Office Expenses (Not The New Home Office Standard Deduction)When you itemize your home office expenses, the IRS will often review the tax return to make sure the expenses are really for business purposes. There is a new standard deduction for home office expenses that will not raise any red flags.

You should not worry as long as you know that you filled out your tax return properly. Just make sure that you keep good records of all the deductions and credits you take so you will be prepared if the IRS has any questions.

Avoiding IRS Tax Audit This Year

There are many things that seem to raise the red flag every time a tax return goes to the IRS. This article is going to point out some of the reasons behind an IRS audit. These points tend to increase the probability that you are going to get an audit from the IRS at one point in your life.

The first thing that should always put you on the look out is if you make a lot of money. Generally, people who earn a lot of money tend to underpay their taxes. The problem is that while people make money, they tend to spend it on many different things and forget that they are required to declare all sources of income and pay the taxes that arise from such incomes. This means that there is always the risk that such a person is underpaying his taxes or not paying some of them at all. This is a matter of concern for IRS.

There is also the risk that such a person fails to report all of the taxable income from 1099’s or W-2’s reported to the IRS. This failure may be intentional or just out of ignorance.

Another factor to look into is the charitable deductions that you make or receive. Giving back to charity and accepting charitable donations is one of the ways in which many people keep off paying taxes. However, there are some deductions that are tax exempt while others are taxable. There are many other types of deductions that you should also look out for the home office deductions that are claimable the rental losses that you make, business meals and travels as well as entertainment expenses.

One of the common mistakes that many people make is to write off the losses that have been acquired from a hobby activity among the business losses. In some cases, business persons who use their vehicles for business activities tend to claim 100% of the use of the vehicle on the business. Some of these things almost always tend to raise red flags all over the IRS servers.

Other things that may raise the IRS red flags include running a cash only business, failure to report the foreign bank accounts that individual holds and trade in currencies. Even then, whatever the reasons that you may have, it is important to avoid IRS audits. Overstating deductions and profits in most cases also attracts the IRS to your doorstep.

This is why it is important to use professionals in this field to cover the loopholes that you may have had. Professionals will also help you better organize your financial returns and reduce the possibility of raising the red flag at the IRS.