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As you gather your receipts and get ready to file your return, you may be wondering what your chances of getting audited by the IRS are. Whether it is simply an exchange of forms and documents through mail or direct face-to-face contact, nobody wants to deal with the IRS or with an audit. So, what are the things that can potentially trigger a tax audit?
You may be happy to know that the majority of taxpayers escape audits. In recent years, the IRS has audited less than 1% of the individuals filing their tax returns in California. Moreover, most audits are handled by mail, and you do not need to meet with the officials in person. However, some factors can increase your chances of an audit, and maybe even a complex one.
For instance, earning a lot of money is one thing that grabs the attention of the agents. To avoid an audit and an unpleasant experience, try to avoid as many red flags as possible. Read this blog to know what those red flags are. In the meantime, consult with a CPA in Roseville, California, to ensure your financial documents are organized and up-to-date for tax season.
Common IRS red flags that could trigger a tax audit
Missing income
One of the major red flags for the IRS is that if you are missing income. A lot of people try to outsmart the IRS but forget that they receive information from employers and financial institutions, such as banks. If you do not report some of your income and try to hide it, the IRS is going to find out about it one way or another. It is best not to do something like this.
In a lot of cases, freelancers and those who do investment work underreport their income. If there are even the slightest discrepancies between the information received by the IRS and the income amount in your report, there is going to be an additional investigation.
Making too much money.
Did you think making too much money is going to be fun? Well, for the most part, it is. However, there are certain challenging sides to it as well. While it is not bad to have money and be rich, it does increase your chances of being audited. This is especially true today because the IRS has received funding to investigate higher-income taxpayers.
This is because most of the tax fraud is done by people who make a lot of money. It does not mean that you should stop earning so much. You just have to be extra careful with your financial documents and records. And do not be shocked when the IRS audits you!
Excessive deductions.
This may sound absurd, but if you claim a lot of deductions to save money on taxes, you will attract the attention of the IRS. However, it is valid in some cases. For example, if you claim $60,000 in deductions while your entire income is $90,000, then it is going to seem suspicious. A high amount of deductions should align with your income level.
If you are claiming deductions, make sure you have the evidence to back it all up. This is important so that you can defend yourself during the audits, and it raises fewer questions and doubts. If you cannot produce documented evidence for your deductions, you could end up losing them in the audit.
Don’t be scared of an audit!
It is easy to become scared and alarmed when you receive mail from the IRS. However, if you have not engaged in any form of illegal activity, you should be fine. It is still important to have someone to defend you during the process, though. Hire a CPA in California today to ensure a smooth audit!
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