How to Avoid Being Audited, woman, turned away, beach, bench, rocks

How to Avoid Being Audited

No one wants to pay more income taxes than they are required to, but be careful if you prepare your own taxes. Attempting to cut your tax liability by getting into IRS grey areas can cause you problems later on. You don’t have to do anything unethical to get your return pulled for an audit; you may just have raised too many red flags. Also, an audit can be done via letter, (i.e. CP2000 Notice) not just face-to-face. If you’re in the middle of an audit, or owe back taxes, contact Jeffrey Schneider, EA, CTRS to resolve your tax problem(s). Here are the top 10 red flags the IRS target that you want to avoid:

1. Making too much money

First, here’s a problem most of us would dream to have. Making over $200,000! You’re honestly more likely to be audited. The fact is that there are fewer auditors, so the IRS is focusing on where they can make the most bang for their buck.

2. Not reporting all of your income

No matter how much or little you make, you have to report everything. In some way or other, unless you run a strictly cash business, all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated, then they are sent in to the IRS. If your reported income doesn’t match theirs, you will get a notice.

3. Math errors

Your information will be entered into a computer whether you file electronically or file a paper form. Remember, the one thing computers are very good at is doing math and if things don’t add up, or there was an honest mistake while inputting the information, it can raise a red flag. A math error won’t necessarily generate an audit, but it will get the attention you may not want. Make sure to double check your returns. Better yet, have a qualified tax professional assist you and keep you out of tax trouble.

4. Home businesses that never make moneyHow to Avoid Being Audited, cartoon woman, shocked, thinking, i thought i could just write it off

Sole proprietorships that file a Schedule C year after year and always show a loss will raise a red flag. You could even show a profit, but if the profit margin is always unreasonably small, then that will get the IRS’ attention.

5. Large charitable deductions

There is nothing wrong with being charitable and there is no legal limit to how much of your hard earned cash you can give away. It is another red flag, however, if your donation is different than what’s considered the norm.

6. Overstating business expenses

Depending on the type of job you have, there can be many legitimate expenses that your employer doesn’t reimburse you for. Don’t be tempted to write off just a little extra if you have your own business. These might be genuine deductions you’re considering. However, you don’t want to deduct something that’s not on the approved list and don’t claim deductions way outside the norm. Check with your tax professional – or if you don’t have one, consider Jeffrey Schneider, EA, CTRS, NPTI Fellow – who is up to date with tax laws. You don’t want to be padding your tax return with write-offs.

7. Sketchy real estate rental revenue or losses

Some people will ‘rent’ their property to friends or family at well below market value and then claim normal rental business expenses. As with other areas, the IRS compares what you claim against local standards to determine if this is a legit business. If not, they will disallow the deductions.

8. Home office deductions

There are absolutely legitimate home office deductions but the IRS has very strict guidelines on what you can claim and how much. Try to claim too much and this is a classic red flag.

9. Claiming losses for things that aren’t deductible or deductible in your circumstances

For example, claiming day-trading losses on a Schedule C. If you dabble in stock trading and take a loss, it may or may not be deductible, but almost certainly doesn’t qualify for a Schedule C loss. You also can’t take a deduction for alimony as a business expense. The IRS maintains a list of non-deductible expenses, make sure to check that and check with your tax professional.

How to Avoid Being Audited, red, bentley, mountains, cloudy, skies, interior, car

10. Claiming 100% business use of your vehicle

If you spend most of the time in your vehicle doing your job, you may think it’s easier just to claim the whole amount as a business expense, but this is wrong. You will either have to show your personal use, no matter how small, or have to show you have a second vehicle for personal use.

How it Gets Confusing

Many of these items are red flags for an audit, but many are also legitimate deductions. The key is to have a qualified tax professional on your side. When it comes to tax resolution, Jeffrey Schneider, EA, CTRS knows how to navigate the IRS maze. He can help you minimize the risk of an audit and the resulting tax problems down the road. Also, he will ensure you have meticulous records and keep you within the guidelines of the IRS.

If you need an expert tax resolution professional, reach out to us and we’ll schedule a no-obligation confidential consultation. Jeffrey Schneider, EA, CTRS will explain your options and help permanently resolve your tax problem.

Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax Problem Solutions as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

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