7 Actions That Raise Your Chances of Getting an IRS Audit | Axiom Tax Resolution Group

No one looks forward to being audited by the Internal Revenue Service. Even though the pandemic has delayed them, there is still a possibility that your return will catch their attention and receive an audit. The IRS audited only 0.4 percent of all individual returns in 2019, and the rate for 2020 is expected to be lower due to COVID-19, which means you probably won’t get called. 

Despite these favorable odds, a few red flags will cause the IRS to scrutinize your returns further. It’s important to know what you should avoid. Here are seven actions that can increase your chances of getting an audit stamp on your return:

Not Reporting All Taxable Income

Everyone, such as banks, clients, institutions, and employers, must send the IRS the exact information they give you about IRS forms like the W-2s and 1099s. That means any time you made money, the IRS likely knows about it, which means it isn’t wise to try to hide any income from them. If you don’t report everything, the IRS will be able to tell that you didn’t document everything you earned, prompting them to dig further into your returns. To avoid this, be diligent in reporting all your income, no matter how small.

Taking Advantage of Too Many Deductions of Credits

The IRS offers many deductions and credits that apply to a set of circumstances and qualifying people. If you don’t fit the criteria, don’t push the boundaries, as doing so will likely result in the IRS taking a second look at your returns. You can work with tax resolution services to determine the deductions or credits you can claim and the ones you shouldn’t take.

Contributing Large Amounts to Charity

Although contributing to charity is an admirable initiative, donating too much will prompt the IRS into comparing your income with what you’re giving to these organizations. They know the average charitable contribution amount for those within your tax bracket, so surpassing this will likely lead to an audit. In short, don’t give more than you can afford, and you won’t have to worry about having the IRS at your doorstep.

Claiming Business Expenses or Losses

If you are a business owner or an independent contractor, you must exercise caution in what you claim as a tax deduction. For example, if you write off hobby expenses as business expenses, claim too many losses on your Schedule C, claim full business use of a vehicle, or simply deduct too many business expenses, this will raise suspicion. Be sure to read the rules for business expenses so you understand when to amortize losses on business expenses.

Trading Cryptocurrency

Cryptocurrency can be complicated to deal with for tax purposes since the IRS doesn’t treat it like cash. They approach trading cryptocurrency like buying and selling property, which means they implement different rules. Before diving into trading cryptocurrency, you may want to consult a tax attorney to understand what you’re getting into and all the tax implications involved.

Using Cash for Transactions

Paying for everything in cash raises alarm bells on the IRS’s end. Even though this may have occurred due to running a cash business or getting paid in it, the IRS will wonder if you’re receiving money in unscrupulous ways. Since many people have used the cash loophole to avoid paying taxes, the IRS looks even more closely at these transactions.

Using Round Numbers in Your Return

If math isn’t your strong suit, it’s best to hire a competent tax preparer to fix your taxes for you. If you do it yourself and accidentally make errors, the IRS won’t look kindly on you, and they’ll likely inspect your return a second time. Additionally, numbers that look too clean or those that are perfectly round often raise red flags. Even though it’s tempting to round off to make it easier for yourself, it’s best to provide the exact figures since forms rarely report numbers in perfect increments. It may be acceptable if you round it to the nearest dollar, but it’s best to keep the numbers accurate.

Conclusion

These are a few of the actions that will cause the IRS to audit your return and ask you to send a corrected one. It’s best to do your return properly the first time, so consider working with a tax resolution specialist to ensure everything is correct to reduce your likelihood of getting a tax audit.

Axiom Tax Resolution Group offers tax relief services in Birmingham to those looking for permanent solutions to their IRS tax woes. Ignoring these problems is an expensive mistake, but working with our trusted tax professionals will ensure your taxes are all correctly filled out. Contact us today to request a consultation!