Top 7 Red Flags That May Trigger A Tax Audit
BENGALURU: Whenever the tax season comes, it makes a lot of us nervous. The Indian Revenue Service (IRS) is constantly on the lookout for people who might be flouting tax rules by underreporting their income, claiming deductions and credits that don't apply to them or partaking in an array of other tax-dodging techniques, according to yahoo.com.
Your Numbers Don’t Match:
If numbers on various forms don't match or add up correctly, the IRS is likely to notice and look into any disparities. So treat your taxes like a final exam in algebra, and check over all the numbers before submitting. If you file using a software program, much of this math is done for you.
You Might Lose Or Forget To File A Form:
If you lose or forget to file it with your taxes, the IRS might notice it is missing and flag your return for review. If you receive a form that looks like it has an incorrect amount or inaccurate information on it, be sure to talk to your employer before filing your taxes so the correct information makes it to the IRS.
Deducting Home Office Expenses:
While plenty of people can legitimately claim home office expenses on their taxes, some people do so incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction. In order to qualify, the home office must be used for work only. Likewise, claiming a car as a business expense can also raise red flags. Again, maintain a pristine paper trail so you can easily explain yourself if asked.
Working For Yourself:
It might not seem fair, but being self-employed can raise red flags for the IRS, especially if you claim your home office and other costs as business expenses but don’t earn much income. As long as you keep careful track of all paperwork so you can defend any deductions and credits you take, then you shouldn’t have anything to worry about.
High Income:
The biggest red flag that may trigger an audit is having a high income. The reason is simple: the IRS is not going to waste their resources pursuing someone who is cheating them out of a few hundred dollars. It would cost far more to investigate than they would get back. However, those who pay hundreds of thousands in taxes every year, they are the ones that make the IRS more money.
You Claim Losses From A Hobby:
While writing off business expenses can be legitimate, it’s illegal to pretend a hobby is a business and then write off the related expenses. For example, if you enjoy woodworking, you might practice the craft on the weekends for fun. Doing so does not enable you to write off the cost of wood and tools, which would only be allowed if you expect to make a profit from the work.
You Were Particularly Generous This Year:
The IRS is always on the lookout for people who inflate their charitable donations. The answer, if you donate money, is to keep all receipts and records of donations so you can explain any deductions that you claim.
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