No one wants the IRS to audit their personal or business accounts. An audit occurs when the IRS becomes suspicious of the information you provide on your tax forms. Audits are not only time-consuming and stressful, but they can also result in a large tax bill with penalties if the agency finds errors. While you certainly want to take every precaution to ensure your tax returns are an accurate reflection of your finances, you also do not want to raise red flags or draw the attention of the IRS.
While the chances of getting audited are low and most audits are random, the IRS does indeed choose to audit certain individuals or businesses whom they suspect of paying less than they owe. Of course, you want your tax preparation to be above reproach, but you should be cautious of the factors that may inadvertently catch the attention of the IRS.
You should not have to pay more taxes than you owe, but sometimes, there is a fine line to walk when trying to keep your tax bill low. Nevertheless, the care you take while completing your tax returns can pay off if it means minimizing the chances you will face an audit. The following are some factors that might launch an investigation into the claims you have made on your tax returns:
- Deductions that are rounded too neatly, such as to the nearest hundred instead of to the nearest dollar
- Deductions for business expenses that are not ordinary and necessary tools of the trade
- A home office as a deduction, especially if you do not use that space in your home exclusively for your business
- Unreported income, such as freelance work
- Claims of charitable contributions that you can’t support or that seem too generous for your income
- A business that consistently reports operating losses
The most common reason the IRS may audit you is if you make errors on your tax returns. This can include incorrectly copying your Social Security number or making arithmetic errors. The IRS will not accept apologies or excuses, and you may be facing harsh penalties, depending on the situation. If an audit is in your future, you will have no room for further mistakes, so you would be wise to seek professional assistance to help you defend yourself during the difficult audit process.