Today, the vast majority of Americans file their returns electronically. And, the IRS has significantly upgraded its technology, in an effort to quickly track down tax evasion and errors.
I wanted to share some information about tax audits that I think are important to keep in mind. Remember these facts - better yet, print them out and keep on hand when tax season rolls around.
• "Making Too Much Money" - Your chances of being audited are increased if you make more than $200,000.
• "Failing to Report All Taxable Income" - The IRS gets copies of all of your 1099s and W-2s. If things don't match up, it's quickly detected in the IRS's computer system. If you receive a 1099 that reports incorrect income, ask the company you worked for to file a correction right away.
• "Taking Large Charitable Deductions" - If your charitable deductions are too large in comparison to the amount of money you make, it raises a red flag.
• "Claiming Home Office Deductions" - The space you claim for working at home must be used solely for work purposes, on a regular basis.
• "Claiming Rental Losses" - The IRS takes a close look at rental real estate losses written off by taxpayers who say they are real estate professionals. Or, if your adjusted gross income exceeds IRS guidelines for this deduction, it raises a red flag.
• "Deducting Business Meals, Travel & Entertainment" - To qualify for these deductions, you must keep detailed records to document your expenses. Keep an eye on this if you're self-employed.
• "Claiming 100% Use of a Business Vehicle" - This raises a red flag if you don't have a second vehicle for personal use. Keep accurate records!
• "Writing Off a Loss for a Hobby Activity" - To claim a loss, you really must conduct your business with the expectation of making money.
• "Running a Cash Business" - The IRS knows that people who operate a cash business are prone to report less income than they actually made.
• "Failing to Report a Foreign Bank Account" - Failure to report a foreign bank account can result in huge penalties. And, catching these tax evaders is a top initiative for the IRS.
• "Engaging in Currency Transactions" - It is mandatory for banks, car dealers, etc. to report cash transactions exceeding $10,000 to the IRS. They are also required to file reports on any suspicious activities.
• "Taking Higher-Than-Average Deductions" - If you're taking extraordinary deductions, make sure your documentation is in order. As long as you have proper documentation, it's OK to take the appropriate tax deductions.
If you are in need of a qualified tax consultant, I would be happy to introduce you to someone I know and trust. Please give me a call if there's anything I can do to assist you.