IRS audits are simply the IRS verifying the numbers to make sure there are no discrepancies in tax returns, and sometimes state tax authorities can do audits too. If your return tells the truth, the whole truth, you need not worry about anything. Nothing is inherently vindictive about state audit or IRS audit. However, people who are intentionally cheating the system do have a reason to be concerned.
Why IRS Audit People
The IRS performs tax audits to minimize the ‘tax gap’, or the variation between what the IRS owes and what the IRS actually receives. Sometimes audits are random, but the IRS often picks taxpayers based on suspicious activity. Tax consultant in New York helps their clients to prepare returns complying with the IRS standards. However, as you walk down the line this tax season, here are 4 biggest red flags expected to land you in the IRS hot seat.
- Making Math Errors
When the IRS starts investigating, it is not going to let any mistake go by, no matter how minor it is. Do not accidentally write a 3 instead of an 8 or do not get distracted and forget to include that last zero. Mistakes can happen, but ensure to double-check and even triple-check your numbers if you are preparing taxes on your own. You will be hit with fines regardless of whether your mistake was unintentional or not.
- Claiming too many Charitable Donations
If you have made significant contributions to charity, you are eligible for some well-deserved deductions. However, do not report any false donations, and if you don’t have appropriate documentation to validate your contribution, don’t claim it. Claiming $20,000 in charitable deductions on a $50,000 salary is likely to raise some eyebrows.
- Deducting too many Business Expenses
For being eligible for a deduction, purchases must be 1) ordinary and 2) necessary for your business. A professional artist can probably claim paint and paintbrushes as these items meet both requirements. On the other hand, a lawyer who paints for fun and does not turn profits on the works might have a problem. The main questions to ask are: Was the purchase common in the business? Was it appropriate and helpful to the business?
- Claiming Home Office Deduction
Home office deductions are usually rife with fraud. No matter how tempting it is to give yourself undeserved deductions for expenses that don’t qualify, it is inappropriate. The IRS explicitly defines the home office deduction as reserved for people who use part of their home regularly and exclusively for business. Occasionally replying to emails on your laptop in front of your 72-inch TV does not qualify your living room as a deductible office space.
The IRS is a regulatory body, and it is its job to streamline the tax-filing of businesses according to defined norms. If you comply with them, great, if you face trouble with filing, you can seek the help of professionals. Tax consultant in New York help businesses with their taxes and also come with solutions for even saving money.