Tax returns are filed by taxpayers every year in Lewiston, ME, but we don’t see everyone being audited every year. The IRS tax examiners check those returns and set the ones for audit that they feel need more details. Although numbers tell us that only 1% of Americans are audited by the IRS every year, here are some of the red flags that you must avoid to be safe from being audited.
Red Flags To Avoid in Lewiston, ME, To Be Safe From IRS From Being Audited
Not reporting all the income: When you are earning income from more than one source, there are chances that you fail to report one of those incomes to the IRS, willingly or unwillingly. The IRS has many ways to know your ways of income, so any unreported income can trigger the IRS auditor to look further into your financials. Remember that settlement of income tax is really important.
Math Errors: This may seem pretty basic to you, but mathematical mistakes are one of the most triggered red flags. Make sure that you double-check all the columns and values before submitting the returns.
Overspending on Home Office: There is a certain amount of your expenses incurred on home office setup or improvement that is exempted from tax. People tend to overspend on offices to try to minimize the tax bill but end up being audited by the IRS. Don’t overspend on home office, and make sure your expenses are well under the threshold.
Being Wealthy: The more you earn, the more are the chances that you will be audited. However, there is not enough you can do about it if you earn more. The best way to avoid IRS audits when you are a wealthy person is to make sure that there is no grey area in your tax returns (you can take help from tax relief companies) and all the information the IRS expects is there.
Overestimating Donated Amounts Or Taking Large Charity Deduction: If you donate way larger than people at your income level, you may end up being audited. The IRS knows how much people like you donate on average. If you are earning less and donating huge amounts, it means you are trying to get a larger tax credit.
Running a Sole-Proprietor Business: If you are claiming to be a high earning or low earning sole-proprietor or private business owner, you are more likely to be audited because the IRS wants to be sure about your credentials. IF you are reporting income less than $25,000 or higher than $100,000 as a sole proprietor (bar owner, store owner, restaurant, car wash, taxi driver etc.), you have a higher audit risk than others.
Claiming huge Gambling Losses or Failing to Report Gambling Winning: Another hot trigger for a tax audit is Gambling. The IRS can know about the gambling losses and winnings on its own, irrespective of whether you disclose it or not. If you are claiming a big loss, make sure that you attach the proof with returns. Similarly, if you win big in gambling, make sure that you disclose all of it.
Engaging in Cash transactions: The financial system and its rules are designed to help the tax system work. Large cash transactions are a big obstacle for the system. If you are constantly involved in cash payments for a long period, the IRS may tend to look into your files deeply to know about these cash transactions.
The above mentioned red flags trigger the most tax audits. However, there are a lot of other minor faults which can lead you to a tax audit. The only way to avoid it is to fill returns carefully and don’t overdo it.
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Zee Maq is a content writer who specializes in writing business and finance content. She has nine years of experience and loves to provide problem-solving content to help people tackle challenges in their everyday lives.