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.

The IRS Is Getting Ready to Audit More Partnerships

If you have a partnership including a LLC or S corporation, your chances of being selected for auditing is increasing. The Internal Revenue Service is getting ready to audit more LLCs and S corps than they have ever done before.

In the upcoming years, the IRS is planning on shifting the focus on business auditing from corporations and start concentrating on “pass-through” entities. This shift information comes from the head of the Internal Revenue Services’ Self-Employed and Small Business division, Faris Fink, at a recent American Institute of CPAs’ National Tax Conference. The reason for the shift is because partnerships have become more complex. The Internal Revenue Service sees partnerships as a business type that has many opportunities for potential tax fraud.

For a long time, the IRS has focused all of its energy on looking into corporations. According to Mr. Fink, the IRS is behind the curve when it comes to developing a strategy for looking into partnerships.

Approximately 95% of all the businesses have a pass-through structure including sole proprietors, S corps and LLCs according to official Internal Revenue Service data. With pass-through entities, the income earned flows directly down to the taxpayer. Bloomberg reported between the year 2007 and 2011, the number of pass through entities grew 15.3%.

Over the years, partnerships have gotten increasingly complex. There are some partnerships that have various tiers and even thousands of partners. These issues make the chances of fraud much more likely according to Mr. Fink. The Internal Revenue Service has started training their auditors on the best way to evaluate pass-through entities so they will be able to identify any red flags.

In 2012, the Internal Revenue Service audited only a small amount of partnerships tax returns, approximately .5%. That is compared with the 1.6% of corporate tax returns and 1% of individual tax returns.

In small business tax and audit news, the Internal Revenue Service announced recently that it would start allowing small businesses that had less than $10 million dollars in revenue the ability to request a fast track settlement. This fast track settlement is similar to what midsize and large businesses have had the ability to do. The rule would let small businesses appeal audits early and they can get resolution in 60 days or less instead of having to wait for the audit to be complete. CNN money sources state that it can take many years for an audit to be officially complete. This is a huge benefit for small businesses.  

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