Ten Ways to Audit Proof Your Tax Return

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Ten Ways to Audit Proof Your Tax Return

 

The tax filing season is upon us and you may be wondering what your chances of getting picked for an IRS audit after I file my taxes? In 2020 due to the Pandemic, the IRS suspended all examination activities for a several month period.  But now the IRS is back to work full time and examinations will pickup in 2021, so how can you audit proof your tax return? There is no sure way to avoid an audit, however there are several red flags that can be avoided to reduce your chances of getting an “IRS Audit Love letter”.

 

 

    • Make sure to report all your income: IRS computers match up all W2’s and 1099’s issued to you with your tax return filing.  Make sure you are not missing a W2 or 1099 when you file and if you own a small business make sure your income at least equals your bank deposits!

    • If you own a small business and file Schedule C, if your gross income exceeds $ 100k your chances of getting audited increase significantly.  To avoid an audit, consider incorporating as an S Corporation.

    •  Don’t claim excessive automobile expenses, such as 100% business use age for a business auto, this is a big red flag.

    • Don’t make too much money: if your taxable income is between $ 200k and $ 1mm your chances of an audit increase.

    • Don’t claim excessive charitable contributions: claiming disproportionate charitable contributions as compared to your income level is a sure way to get an audit letter or claiming a contribution without a proper valuation attached, a big red flag. 

    • Non- Filers: Believe or not, the IRS does not always catch non -filers.  However, the IRS has determined to begin to make it a priority to go after non – filers earning $ 100k or more per year.  Non- compliance can result in liens, levies, and possibly even criminal charges.

    • Deducting excessive amounts of Business Meals and Travel and Entertainment: This too is a big red flag. Make sure to keep receipts and document whom you met with and your business purpose for the meal or the trip. The per diem method can be used.

 

    • Claiming hobby losses on Schedule C: If you own a small business and are consistently showing losses, the IRS may disallow the losses as a “hobby”, especially if you have another job as your main source of income, don’t keep good books and records and don’t show a profit motive.

    • Claiming the American Opportunity Tax Credit: If you claim the college tuition tax credits make sure you follow the rules and have the proper documentation form 1098T to backup.

 

If you have any questions or need assistance with your tax filing call our office and schedule an appointment with one of our tax professionals.

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