Through everyday conversations, I know there are people who stretch the tax law as much as possible in order to claim tax deductions for “business-related” expenses. I’d like to follow up after tax season to see how far they’re actually stretching the rules, and if it’s fishy, to determine how many of these individuals end up being audited.
According to H&R Block, audits are on the rise. Apparently, Americans earning $100,000 have a 1 in 107 chance of being audited, while those on the other side of six figures have a 1 in 63 chance.
Here are some signs that may trigger the IRS to scrutinize your return:
- No signature
- Incorrect social security number
- Unreported income
- Itemized deductions
- Casualty losses
- Hobby losses
Of course, none of these things automatically triggers an audit, but honesty is the best policy. Not agreeing with the tax laws is not a good enough reason to not pay what is owed.
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2:13 am (reply)
Key defenses to prepare for the possibility of an audit are:
1. complete documentation of your deductions
2. engaging a professional (cpa, etc….) to review your return before sending it in
3. avoiding some of the most glaring red flags like:
a. home office deduction
b. hobby business (a schedule c “business” that has not made a profit in 3 of the last 5 years)
Good luck.
makingourway