When it comes to taxes, no one likes to be audited. An audit can be a time-consuming and often costly process, and it can also be stressful and embarrassing. That’s why it’s important to be aware of the red flags that could trigger an audit from the IRS. To help you avoid any complications, here are five of the most notable red flags that can trigger a tax audit.
1. High Income
One of the biggest red flags for the IRS is having a high income. If you make more than $200,000 a year, you’re more likely to be audited than someone who earns less. This is because the IRS is more likely to believe that higher-income earners may be more likely to try to avoid paying taxes. Make sure that you accurately report your income. If the IRS suspects that you are underreporting your income, they are more likely to audit you.
2. Unreported Income
If you fail to report income on your tax return, that can also trigger an audit. The IRS has a number of methods for checking to make sure that all income is being reported. They can compare your tax return to information they receive from your employer, financial institutions, and other third parties. If they see a discrepancy, they’ll likely contact you to ask about it.
3. Excessive Deductions
Claiming too many deductions can also trigger an audit. The IRS looks for deductions that are too large compared to the amount of income reported. For example, if you claim a large deduction for charitable contributions, the IRS may want to make sure that the contribution was legitimate.
4. Large Charitable Contributions
Charitable contributions can be a great way to reduce your tax bill, but you have to be careful with how much you claim. The IRS looks for deductions that are too large compared to the amount of income reported. So if you’re claiming a large charitable contribution deduction, make sure it’s legitimate.
5. Unusual Business Expenses
When it comes to deducting business expenses, the IRS is looking for anything that seems out of the ordinary. So, if you’re claiming a deduction for an expense that seems a bit odd or out of place, it could trigger an audit.
To avoid this, make sure that you’re only claiming deductions for legitimate business expenses. This means expenses that are necessary and directly related to your business. For example, if you’re a freelance writer, you can deduct the cost of your computer, printer, and internet service.
If you’re not sure whether an expense is deductible, it’s always best to consult with a tax professional. They can help you determine whether an expense is deductible and how to properly document it.
By being aware of these red flags, you can help avoid triggering an audit from the IRS. If you think you may have triggered a red flag, it’s important to seek the advice of a qualified tax professional. They can help you understand your options and make sure that you’re in compliance with the law.
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