No one wants to find themselves in front of a desk littered with tax forms and receipts, staring at an IRS agent. A tax audit can be a nerve-racking experience and generally, if you fill out every form correctly and send in all the right paperwork, meeting an IRS agent shouldn’t be a big deal. However, money is a touchy subject and IRS forms are—how can we say this nicely—tricky.
How can you lessen your likelihood of being audited? While there are definitely some red flags, which we’ll discuss in a moment, sometimes it is pure chance that you are chosen for an audit. If that’s the case, always completing your tax forms correctly and honestly is your safest bet to getting out of that IRS office as soon as possible. If you feel uncomfortable handling an audit by yourself, a tax resolution service of knowledgeable tax attorneys may be able to help you. Most trustworthy tax law firms offer a free consultation that will help you better understand their services and how they can help you.
IRS Red Flags:
Donations: Whether you’ve donated your car to a Veteran’s group or some clothes to the Goodwill, noncash donations in large amounts can raise eyebrows. Carefully follow the instructions for valuing your items and keep donation receipts for proof. Most nonprofits are happy to provide a receipt of your donation, but you’ll need to do the research for valuation.
Travel and Entertainment: If you travel for work and are used to deducting the costs of your meals and entertainment—beware! Make sure to keep your receipts and really consider whether your expenses are work related or not. High travel and entertainment deductions can make you stick out like a red thumb.
Real Estate Losses: While you can’t really help it if you have a real estate loss, you can be prepared for the extra attention it will garner. Keeping records of your time throughout the year will make tax time easier. Remember, don’t just focus on how much money you spent fixing up your properties, but also how much time you spend involved in real estate activities.
1099s, K-1s, and Schedule Cs: Contractors and business owners will probably recognize these tax forms. Many times there are multiple 1099s to file. Make sure each of them is accounted for and reported, regardless of how small the amount on the form may be. The same goes for K-1 forms. Unfortunately, Schedule Cs are big red flag. Before filing, make sure that is the correct form for you business and do your best to keep meticulous records throughout the year.
Tax time can be a stressful part of the year as you begin to determine what’s deductible and what’s not, as well as how much you’ll be paying or receiving as a refund. You can set yourself up for success by preparing for taxes year round with good organizational habits and some accounting know-how.
While we can keep an eye on some red flags, we can’t know everything the IRS is looking for or why they may decide to audit any one particular person. If you find yourself in a situation where you think you may need legal advice about a tax problem, it is important to contact a reputable tax relief law firm to help you tackle your audit head on. Most IRS correspondence is time-sensitive, so make sure you contact a tax attorney as soon as possible.