Filing taxes is a very cumbersome task but what makes it more cumbersome is that you might be subjected to an income tax audit by the agents from the IRS. Your income tax return may be chosen by the IRS especially when it raises red flags. However, there are income tax returns that are selected out of random selection or just part of a target group thus when your income tax return is chosen, it does not mean that your income tax return is suspicious. In fact, there is no exact advice that will prevent IRS from auditing your income tax given the situations above.
The thing here is that there is no guarantee that you will not be audited by IRS but there are ways that you can do in order for you to reduce the odds of receiving an Audit Notice but the best thing that you should do is to avoid fraud.
Here are some mistakes and red flags that you should not do if you do not want to attract the attention of the IRS:
Calculation errors– this particular error is very easy to fix but do not expect to reason out with the IRS that you think that you do not owe taxes to the federal government just because of a simple mistake in your calculation. To remedy this, make sure that you check your figures using software like TurboTax.
Not declaring income– another way for you to get the IRS behind your tail is by omitting your income. By not declaring your income properly, you are depriving IRS the right tax that you need to pay them. Thus make sure that you collect all documents and declare your income that you get from stocks, bonds and interests especially if you are now making more than $100,000 out of them.
False business expenses– most people use their business funds to pay for their personal expenses. However, if you use business expenses, then the IRS will surely view it as a failure to report any income.
Filing for Schedule C or as self employed– there are a lot of people who file their income tax return under the status of self employed since they can hide their income and make it look like business loss. The thing here is that the IRS is good at detecting any outright lies that you have to make thus it usually pays more attention to Schedule C filers than other types of income tax filers.
Selected target groups– the IRS, when they select candidates for audit, looks for different returns from different types of filers who make more than $100,000. The IRS also looks at the unequal returns from taxpayers who belong to the same income bracket, profession and family size. For instance, if you claim that you are a family of six and lives in Beverly Hills but only claims about $25,000 then the IRS will investigate on your claim.
Whistleblowers– if you purposefully scam the IRS, then you are still not safe since the IRS is willing to pay a hefty sum to any whistleblowers who can reveal the identities of tax evaders.
Some of these “red flags” are bound to happen but being subjected under IRS audit can be prevented if you are honest thus if you have a small business, then file it as a small business. But even your honesty does not prevent the IRS from tapping you on the shoulder thus you have to be ready all the time.
How To Stay Out From IRS’ Radar?
Aside from avoiding these red flags, you should also hire a good accountant in order to make sure that everything is in order. This is true if you happen to own a business. Moreover, you also need to use Tax preparation software that will help you prepare your tax without any errors.
To help you with your tax preparation, it will greatly help if you use a computer. The IRS usually favors a computer-processed return the fact that they are clear and very organized. If, however, you have no access to computer, then printing the figures carefully will suffice. Make sure that you make two copies of the documents. The first copy should be the first draft and the second one should be the final draft that you will submit to the IRS.
The last thing that you need to do in order to lessen the chance of being audited is to file on time. If you cannot pay all of your debts, then paying a partial of the amount is enough and this indicates good faith in your part. On the other hand, if you file for a tax return extension, then you simply extend the deadline but not the payment. In fact, if you pay late, you will be charge 25% as penalty for your actions thus if you want to do yourself a favor, make sure that you pay the right amount you owe to the federal government on time.
What To Do When You Receive A Notice Of Audit?
If you receive a notice of audit from the IRS, then do not panic. If you have all the right calculations and documentations to prove your claims, then why worry? You will be alright and the IRS will end the investigation as smoothly as it began.
There are basically three types of audits that the IRS will conduct and these include the correspondence, field and in-office interview. The first type of audit is the most common type of all. This involves the IRS noting the correction on your return and sending it back to you with a notice to pay or to provide explanation on the information that you declared. The field audit is common among business establishments. The agent from the IRS goes to the site of the business establishment and inspects the books and the documents of the business. The in-office audit is usually conducted in the office of the IRS.
You need to consult with a professional who can guide you along the process and also help you prepare for the audit. What is good about tapping the shoulders of these professionals is that they are straightforward. This is true for a correspondence audit while if you are subjected under the field and in-office audit, it is important that you get a good representation from a professional to assist you with your case.