The chances of your tax return getting audited by the IRS are about 1 in 160. Dealing with an IRS audit can be very stressful, which is why you need to work hard to avoid this experience.
Most people fail to realize that there are some IRS audit triggers in place. The best way to avoid setting off these triggers is by seeking out some professional tax help.
With the guidance of a tax preparation professional, you can get your taxes filled out quickly and correctly.
Are you curious about what audit triggers you need to avoid activating? If so, read below to find a detailed list of these IRS red flags.
1. The Computerized IRS Audit Triggers
The computer system used by the IRS has a specifically designed piece of software that is built to detect tax return anomalies. The Discriminant Information Function (DIF) scans each tax return this government agency receives.
This system mostly looks for things like duplicate information, as well as any credits or deductions that do not make sense. The DIF will compare your return with other citizens in a similar income tax bracket. If this system red flags your return, it will ask for a human agent to review the return.
The best way to avoid these red flags is by going over your tax return multiple times before submitting it. By reviewing the return, you can make sure there are no errors that may set off red flags.
2. Overlooked Income Can Get You in Trouble
The United States government keeps a close eye on the income earned by taxpayers. The IRS forces cooperation from any entity that may pay out money to individuals throughout a tax year.
Most employers provide the IRS with a W-2, which details how much you have made in a given year. This information is put into the DIF system before returns are submitted.
If you fail to report income that is in the DIF system, you are probably going to get audited. Keeping track of all of the income that you earn throughout the year is the only way to avoid this issue.
3. Claiming Massive Amounts of Deductions
While you need to take all of the tax deductions you can get, be careful when trying to claim tax breaks that do not apply to you. Itemizing your deductions is not only time-consuming, but it can also get you in a bit of hot water with the IRS.
Claiming too many charitable donations, for instance, can cause red flags to go up. If you insist on itemizing your deductions, then working with an accountant is essential.
4. Owning a Cash Business Can Be Problematic
Do you operate a mostly cash small business? If so, you may be subjected to an audit. Failing to keep detailed records of the income your cash-based business is bringing in can create lots of problems.
If your lifestyle does not match the income you have reported for your cash-based business, it can throw up some serious red flags. Instead of trying to cheat the system, you need to report all of the income you bring in.
Getting Professional Help is Essential
Unless you have a background in the tax preparation industry, you need to hire professionals to help you out. With their assistance, you can avoid setting off IRS audit triggers.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of the same issues faced by our clients.