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With tax season upon us, it’s important to know what the IRS looks for when deciding whom to audit. Although most taxpayers don’t have to go through this experience, the potential is always there, especially if a tax return raises red flags. Your chances of being audited depend on several factors, but there are certain issues that draw unwanted attention from IRS. The accountants at Lee & Smith, PLLC in the Texarkana area explain a few of the most common audit triggers.

Accountants’ 5 Reasons You May Get Audited

1. Not Reporting All of Your Taxable Income

Failing to report all of your taxable income is one of the fastest ways to generate correspondence from the IRS.  Copies of your earnings statements such as W-2s and Forms 1099 have already been filed by the organizations for whom you worked, and the IRS will match this information with the income reported on your tax return.

2. Claiming Too Many Business Expenses

Owning a business allows for numerous deductions, but taking too many invites more scrutiny from the IRS. They will be reviewing each expense to make sure it’s ordinary and necessary for your particular business.  If they believe you have an excessive amount of expenses, you may need IRS representation to help you prove their necessity and validity.

3. Taking Large Charitable Donations

accountantCharitable donations offer an excellent opportunity for legitimate tax deductions. However, if your donation amount seems excessive compared to your total income, the IRS may question your claims. It’s essential to  keep the proper and necessary documentation to support your donations.

4. High Level of Income

You may have a greater chance of being audited as your total income increases. Typically, those who earn $200,000 or more have higher audit rates. This is often because larger incomes result in more complicated tax returns and more extensive deductions.

5. Deducting Home Office Expenses

The IRS may be more interested in tax returns that claim home office deductions. These spaces must be used exclusively as a place to conduct business and can’t serve any personal purpose. IRS auditors will often want proof that your home office is dedicated to performing job duties only. You must also have no other office space available in which you work.

 

One of the most effective ways to avoid these red flags is to have a certified public accountant assist you with your tax preparation. In the event you are contacted by the IRS, it’s important to obtain IRS representation quickly to ensure you understand the audit process and are properly prepared when it begins. For full disclosure and to learn more on this topic, contact Lee & Smith, PLLC at (903) 832-4339. Visit them online for additional information.

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