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Common audits caused by investment income

On Behalf of | Jun 20, 2019 | Tax Audits

There are a variety of reasons why the IRS may decide to audit a Georgia resident’s tax return. However, most audits are triggered because something on a return seems unusual based on the income a person has reported. For instance, if a real estate investor writes off a high amount of mortgage interest, that could be suspect given that interest rates are relatively low. It is important to include dividends, interest and capital gains accrued during a given year.

In some cases, taxpayers will simply be asked to pay what they owe. Those who are due a refund may simply have it reduced by the IRS before it is sent out. If a mistake is discovered after a tax return is initially filed, it can be corrected by submitting an amended return.

Taxpayers can also get into trouble by not reporting the initial cost basis on employee stock options. The initial cost basis is what determines if there is a gain or loss after the stock is sold. Even if an individual may not record a large gain or loss, the IRS may still audit a return that is missing information about a transaction. In the event that a taxpayer is sent an audit or similar notice, it is important to be polite and not assume that there were errors on a return.

Those who have been audited by the IRS are encouraged to respond to the notice in a timely manner. Furthermore, individuals may want to seek the advice of an attorney to represent their interests in a tax case. In some cases, the IRS may close an audit with no changes to a tax return. It is also possible that a taxpayer could receive a larger refund from the government.