Even though the IRS is facing another budget cut, it does not mean that American taxpayers will get away with trying to cheat the IRS. There are always red flags the IRS is looking out for, so if you wish to avoid a tax audit and fill in your taxes as accurately as possible, these are the red flags you should consider.
Reporting Your Income
When you report your income to the IRS, it is important to report everything. If you have forgotten to report something, you are more likely to be subjected to a tax audit.
The wages Americans earn on the job are reported to the IRS with W-2 forms. Any interest, dividend or capital gain is reported on the 1099s form. Both forms are provided to you and the IRS, so if you skip information from any of these forms on your tax return, you could be getting a tax audit!
To ensure everyone reports their income accurately, the IRS uses a form-matching program; this means that discrepancies will show up if you have made an error on your report. The moral of the story? Don’t try to hold back on any of your income when making your report.
Profit for Businesses
Americans who decided to run their own business will need some extra documentation to prove their earnings. When you just start your business, it is unlikely that you will have profit. Of course, reporting a loss over a longer period can cause the IRS to take a closer look at your business’ finances, so if you are tempted to do some creative bookkeeping for your business, consider that you are more likely to have an audit in the future.
Explain Irregular Additions in More Detail
Unclear or questionable information is another reason why the IRS could decide to take a closer look at you, so if you add anything that requires some additional clarification, make sure to provide this information on your tax return.
A good example of an irregular addition is someone who reports an income that does not match the place they live and the size of their family. If your income seems insufficient to support yourself and your family, the IRS may see this as cause to do an audit, since you may be holding some income back. Therefore, make sure that you describe irregular additions as best as you can.
Don’t Overdo Office Deductions
Many businesses are tempted to deduct a lot of office supplies and equipment. Even though it is not a problem, when you use the creative bookkeeping tactic, you may get a visit from the IRS. Only deduct for legitimate business expenses and ensure they are reported in the right category. When in doubt, you can also find more information about your deductions on the IRS website.
Conclusion
There are many red flags the IRS looks out for, so even with a smaller budget, they are more than capable to spot discrepancies in your tax return. Therefore, always fill in your return accurately and say goodbye to creative bookkeeping tactics that could get you or your business in trouble.
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