No one wants to get audited by the IRS. Unfortunately, it happens to many people every year. If you want to avoid being one of those people, then read on! In this post, we will discuss 6 common IRS audit triggers. Knowing what these are can help you avoid them and keep your business in good standing with the government.
6 Common IRS Audit Triggers
Being audited by the IRS can be a daunting experience, but it’s important to remember that you’re not alone. Thousands of taxpayers are audited each year, and certain factors can make you more likely to be selected. Here are six common IRS audit triggers:
#1 Failing To Report All Of Your Income
- The Internal Revenue Service (IRS) has many triggers that can cause them to audit a person or business. One of the most common audit triggers is failing to report all of your income.
- The IRS requires you to report all sources of income, even if it’s cash. Failing to report income from a side job, tips, gambling, or any other source can trigger an audit.
- The IRS has several methods of checking for unreported income, including comparing your tax return to information returns from banks and employers. So, if you’re not reporting all of your income, it’s only a matter of time before the IRS catches up with you.
#2 Deducting Too Many Business Expenses
- As a small business owner, it’s important to be aware of common IRS audit triggers. One of the most common is deducting too many business expenses.
- The IRS has strict guidelines about what can and can’t be considered a business expense, and if you’re claiming deductions that fall outside of those guidelines, it’s likely to trigger an audit.
- To avoid this, make sure you do your research and only claim deductions that are allowed. If you’re unsure about whether or not a particular deduction is allowed, consult with a tax professional. By taking these precautions, you can help minimize your chances of being audited by the IRS.
#3 Taking Large Charitable Deductions
- Several different things can trigger an IRS audit, and one of them is taking large charitable deductions. The IRS has a keen interest in making sure that people are only deducting donations that they made.
- If they suspect that someone is exaggerating their deductions, they will take a closer look. Of course, this doesn’t mean that you shouldn’t take charitable deductions if you’ve truly made them- but it does mean that you need to be careful and make sure that you have documentation to back up your claims.
- Keeping good records of your donations will help to ensure that you don’t trigger an audit, and it will also make it much easier to substantiate your deductions if the IRS does decide to take a closer look.
#4 Filing A Schedule C
- Filing a Schedule C is a common IRS audit trigger because the IRS considers this form to be an indication of self-employment. If you are considered self-employed, the IRS will expect to see additional documentation to prove that your business is legitimate and that you are reporting your income accurately.
- The best way to avoid an audit trigger is to avoid filing a Schedule C altogether. If you must file a Schedule C, be sure to include all of the required documentation and to accurately report your income.
- The IRS may also flag your return if your expenses seem excessive or if you are reporting a loss. If you are audited, be prepared to provide documentation to support your claims. Remember, the best way to avoid an audit is to be as accurate and complete as possible when filing your taxes.
#5 Making Math Errors
- Making math errors on your taxes is one of the most Common IRS Audit Triggers. The IRS knows that taxpayers are more likely to make mistakes when they’re doing their taxes, so they take a closer look at returns that have errors.
- If you’re being audited, likely, the IRS has already identified some errors on your return, and they’re going to want to know how you made them. The best way to avoid an audit is to be careful with your math and to double-check your work before you file your return.
- If you do get audited, don’t panic. You’ll have a chance to explain your mistakes, and as long as you’re honest and cooperative, you’re unlikely to face any serious consequences.
Conclusion
No one can guarantee that they won’t be audited but if you take some simple precautions, you can minimize your chances. Stay organized and keep good records, consult with a tax professional to make sure you’re taking advantage of all the credits and deductions to which you’re entitled, and above all else, don’t try to cheat the system. An audit is always a pain but it doesn’t have to mean an automatic loss of money or points on your return. By being smart about your taxes year-round, you can put yourself in the best position possible should the dreaded IRS letter arrive in your mailbox. Thanks for reading!