Top Seven Warning Signs That Can Initiate a Tax Audit by IRS
In general, no one really wants to be audited by the Internal Revenue Service (IRS) and to be frank, it’s a problem. There are chances of getting audited as the income level increases as well. It is better to play safe to avoid the burden and stress of an IRS audit.
Here is a summary of the reasons for getting audited
– Annual income
– Exclusion of income while filing returns
– Deductions claimed based on total income
In order to stay out of this IRS auditing, it is prudent to look into a few red flags (warning signs) which you take note of as follows;
Earning income from multiple sources
When you have multiple sources of income, say you are a freelancer, it may turn out for you hard to maintain all of the income year earned, and the much more likely you’re to leave out a payment. Any organization you work for is required to send the IRS copies of all 1099s and W-2 forms you receive. If the income you record doesn’t line up with those forms, that mismatch IRS will trigger at least a letter audit.
Unreported income is a huge deal to the IRS. According to a recent IRS report, U.S loses hundreds of billions per year in taxes due to unreported income. So if you fail to showcase those earnings, the IRS will ask explanations.
Running own business
The IRS always have an impression that they can find more the unpaid tax from those who run own business. It’s always better to keep a good track of records if you are running own business. It is advisable to maintain in-depth reports, which consists of business associated receipts regarding purchase etc. in a good categorized manner is a must when filing the returns.
Foreign Accounts & Assets
If you keep the overseas account, it could certainly raise questions in the minds of IRS specialists. Also, the IRS is intensely focused on any individuals who hold an offshore bank or any kind of security accounts. Also, the residents and citizens of U.S who hold any foreign assets are required to report it to the IRS on form 8938.
Involving in huge money transactions
The IRS obtains many reports concerning the excess amount of currency transactions via bank deposits and withdrawals, casino visits etc. Even many banks also fill out an IRS reporting form for cash transactions of over $5,000. It is advisable to take note of these transactions and be prepared to give an explanation in the case asked for.
Hiding the taxable income
If you file a return which doesn’t match up with the records sent to the IRS by your employer, you are most likely to be called into account as the IRS gets all the copies such as 1098’s, 1099’s and W-2’s. Hence, it’s always better to file a return on all your taxable income.
Corporate deductions and Personal expenditures
It is always better to keep corporate and personal expenditures at a distance as much as possible because the IRS experts will have all the particulars regarding your family members and are greatly skilled to check the significant purchases made immediately prior to birth dates or anniversaries.