When it comes to tax audits, there are several red flags that could increase your chances of drawing unwanted attention from the IRS. Here are some key issues to be aware of:
Failing to Report All Taxable Income: The IRS receives copies of all the 1099s and W-2s you receive and cross-checks them with tax returns. Make sure to report all required income, and provide accurate numbers. If there’s a mismatch between the forms and the income you report, it can trigger a red flag.
Excessive Deductions or Unusual Expense Patterns: Claiming unusually high deductions or having irregular expense patterns can raise suspicion. Be cautious about deductions that seem disproportionate to your income or business activity.
Refundable Credits: While claiming refundable tax credits like the earned income tax credit or the refundable portion of the child tax credit is legitimate, errors in these claims can attract attention.
Home Office Deductions: If you have a home office deduction, ensure it’s valid and accurately calculated. Overestimating home office expenses can be a red flag.
Math Errors: Simple math mistakes on your return might not lead to a full-blown audit, but they can still draw extra scrutiny.
Late Filings or Frequent Amendments: Consistently filing late or making frequent amendments to your returns can raise suspicion. While there is no surefire way to predict an IRS audit, being aware of these red flags and filing accurately can help you avoid unnecessary trouble. If you have any doubts, it is always best to reach out for professional advice to ensure compliance with tax regulations.
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