If you have finished compiling information so that you may file your federal income tax return, we commend you. Getting one’s taxes filed before the deadline (April 18 for this year) is an accomplishment. While you may breathe a sigh of relief, your dealings with the IRS may not be over; especially if you have the misfortune of having your return flagged for an audit.
Indeed, only a small percentage of taxpayers are audited, and we highlighted in a prior post that high income earners, and those who tend to report no income at all are more likely to be audited. Nevertheless, there are certain red flags that could subject you to a call from the IRS.
This post will highlight a few.
Making math errors – When dealing with so many calculations, especially if you are compiling information from a number of sources, mathematical errors are inevitable. However, math errors that dramatically change your income (or your refund) could trigger an audit.
Reporting too many business losses – Even though the economy has improved over the past couple years, some business struggle. However, the IRS is well aware that some taxpayers may hide taxable income by embellishing on their business losses.
Reporting only round numbers – Chances are that your calculations will include a diverse set of numbers that reflect various dollar amounts and expenditures. The IRS may become suspicious if all of your numbers are reported to the nearest $100. For instance, the $4291 of repairs on a rental property may be acceptable, but the $4000 in repairs may see additional scrutiny.
If you have additional questions about audits, an experienced tax attorney can advise you.