A tax audit sounds like everyone’s worst nightmare. An IRS audit can take years and thousands of dollars. Although there is no perfect equation that will result in a tax audit, there are certain red flags that will raise your chances of getting one. If you find yourself nodding along to one or more of the items below then you might expect an IRS audit in your future.
1. You had big donation write-offs
Are you a charitable person? Your nice gesture can increase the chances for an audit. The IRS keeps a close eye on people that have large charitable donations which are disproportionate to their income. The IRS keeps track of the average donation amount per income bracket. If you exceed that number then you could be in trouble. As long as you keep a record of your donations along with receipts then you will be fine. Always fill out a tax form if your donation is larger than $500.
2. Your income took a big hit
If you suddenly switched to a lower paying job or lost a lot of business then the IRS will likely flag you. People who have major changes in their income might look like they are underreporting on their taxes, especially if the change is sudden. Always fill out forms for all of your income sources.
3. You made a mistake on tax forms
There are a lot of pages and boxes to fill out in tax forms. It is easy to miss one, especially if you are doing it on your own. If you forget to send in a form or if there is incorrect information on your form then expect to get a letter in the mail.
4. You are self-employed
While being your own boss can be great, it will increase your chances for an audit. If you claim a lot of business expenses for your home office or mileage, but do not have high earnings, then the IRS will be watching you. Just make sure to track everything very carefully, including receipts. Every mile will count if the IRS decides to audit you.
5. You forgot about some income
If you are a freelancer or if you work multiple jobs a year then you already know how hard it can be to track all of your income. If you forget to add in one source of income but the IRS’ documentation says otherwise then you will be flagged. This can cause a lot of trouble while you scramble to find proof of the project.
6. You joined the millionaire club
Most people have a less than one percent chance of getting audited. If you earned more than a million dollars then your chances of getting audited jump to 8.42 percent. The more money you make the greater chance of an audit. If you make over $10 million then consider an audit likely. Although this seems unfair the IRS perceives that millionaires have more money so they also have more to hide.
If you have done one or more of the above things recently then you might be in for an audit. Make sure to have an experienced tax lawyer at your side to minimize the impact of an IRS audit.
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