The 2009 economic stimulus bailouts, our country?s economic challenges and the growing Federal deficit will only increase the IRS? desire to impose an IRS income tax audit on you. One things for sure? Our government needs money and the IRS is going to get even more aggressive in the years ahead to collect as many tax dollars as they can.
Although the IRS does not publish their checklist of standards on auditing income tax returns, our 25 years of experience in preparing over 10,000 Federal Income tax returns for our clients has taught us that there are 5 problem areas that if you are sensitive to, can help you reduce the risk of a lengthy and potentially costly IRS Audit.
So let’s get started.
1) The most common way to get selected by the IRS for an audit is also the easiest to avoid?don?t submit a sloppy return. You see when you file your tax return with the IRS on of the first things that happen is that the IRS will run a series of matching programs on your tax return. The will check k your math and also verify all information reported on you by your employer, pension plan, home mortgage and other 1099?s are properly noted on the return . Filing an incomplete or illegible return draws attention and is a warning sign to the IRS. A neatly organized and computer generated income tax return reduces the suspicion and need to investigate the return by an IRS auditor. At Trippon and Company CPAs, we have some of the most technologically advanced federal income tax preparation software to organize your income tax return so it is presented in a professional and organized manner. We know how to properly report your activities so that you do not get snared by the IRS matching programs. We even have created an Audit Protection Plan, offering representation to our clients in the event they face an IRS audit. To learn more about our Audit Protection Plan, contact us at 713-661-1040.
2) Now let?s look at another audit problem area? – Home-based Office Tax Deductions. Home-based office expenses, whether from your primary income source or from a part-time job, are likely targets for IRS audits. If you own a home-based business, you definitely need to keep good records. Although it is completely legal to take home based office expenses if you are self-employed…it definitely raises your chances of being audited. The key here is to only claim deductions on legitimate and well documents expenses. I cannot over-emphasize the need to keep accurate tax records, receipts, and document anything that is going to be considered a tax deduction. The better you document your business expenses, the easier the claim is to justify during an IRS audit. It might be tempting to deduct questionable expenses to reduce your tax liability, but resist the temptation because . Facing an IRS audit is not worth it. If you are not self employed, home based business deductions become even more problematic. The government will typically assume that most businesses will provide you a place to work, of course that is not always the situation for people who work in jobs like outside sales.
3) another source of IRS audits is your income level. The fact is? the More Money You Make, The More Likely You Are To Experience An IRS Audit.
Most Americans would love to have to worry about making too much, it is well documented from IRS records that the more money you make the more you increase your chances of you experiencing an IRS audit.
This happens for two reasons. The first is that the more money you earn, the more your income tax reporting error generally means that there is more money to be collected by the IRS if they audit you and find an error. Second, the higher your income, the more likely you are to own a business, multiple homes or rental investment property, investment portfolios, and additional taxable income. The IRS thinks that the more complex the income tax return, the more likely there is to be a mistake.
4) Next let?s look at another risk area? – Charitable Donations
The standard for charitable contribution deductions historically has been that you can deduct up to $500 without detailed documentation. However, with the recent changes in the tax law, this is no longer true. The IRS has begun to require official documentation from the charitable organization which received the donation, or from the financial institution that funded your contribution from your account. As with any tax deduction, you should have the proper documentation in the event you face an IRS audit.
Another important note for charitable contributions is that if you’re making a non-cash donation of property (such as a car) and the value is over $5,000, you’re required to have an appraisal done on the property to back-up your claim.
5) The last area that we will cover in IRS audit risks is when you claim – Unusually High Expenses either for your personal tax history or for your income and occupation.
Deducting excessively high expenses are a huge red flag that throws up warning signs to an IRS auditor. If anything seems out of the ordinary or excessive, the IRS will feel it necessary to investigate. In the event that you have any unusual expenses or excessive deductions, it is always a good idea to send an explanation along with your income tax return to avoid suspicion and reduce the potential of an IRS audit.
At J.M. Trippon and Company CPA?s, we do our very best to eliminate IRS audits of our clients. Give us a call to schedule your complimentary tax evaluation at 713-661-1040.
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