An IRS Audit is not a very common occurrence for most taxpayers. The Internal Revenue Service chooses only approximately 0.6-0.7% of taxpayer’s accounts to be audited every year. IRS audits are unpleasant, and thus, to be on the safe side, taxes should always be filed completely and accurately by a professional.
Because of this, you’ll want to do the right things to reduce your chances of being flagged by the IRS. Learn about these potential red flags that could trigger an audit:
Earning More Than $200,000
In 2017, only 0.2% of taxpayers with less than $200,000 were audited, whereas 0.8% of people with income between $200,000 and $1 million were audited. In that same year, the IRS audited 4.4% of those individuals whose earnings more than $1 million. So, if you’re earning above the $200k mark, be careful while preparing your tax return.
Did you know that when you buy something with cryptocurrency (or even just cryptocurrency itself), it is a taxable proceeding? Recently, cryptocurrency has become a common issue with the IRS. Even if you pay or receive money digitally, the IRS collects all your digital transaction information through your digital currency wallet and scrutinizes your tax return accordingly.
Unreported Taxable Income
While filing your return, make sure that your income from W-2s and 1099s matches the filed income. Tracking your taxable income is easier than other red flags. The IRS compares the income forms and looks for omissions. When they find discrepancies, they contact the taxpayer to count their earnings and reevaluate the reported income to asses the proper income tax penalties.
High Charitable Deductions
When it comes to documenting your charitable transactions, always try to be accurate. The IRS pays strict attention to these types of deductions, and if they find them to be higher than average, they will certainly scrutinize your return. Always keep receipts and letters from any donations you make, and make sure to report only the deductible part of your donation.
The safest way to prevent an audit is to work with a professional year-round on your bookkeeping and making sure your tax returns are prepared, or at least checked, by a CPA.
Photo by Pixabay