An IRS audit is known to be an examination of the information & accounts to make sure that you are appropriately reporting t everything. In other words, IRS is just double-checking to ensure that you do not have any discrepancies in your return. To the fullest, make sure to read this blog to understand why the IRS Audits people.
Sometimes the state tax authorities also conduct audits, and you obviously do not need to worry about it. Nothing is dangerous about an IRS audit if you are not lying. However, those who know they have been cheating with the system have a reason to be a little scared. Try to do Estate Planning as well.
Why the IRS audits
The IRS s conducts these tax audits to reduce the “tax gap”, or the actual difference between what the IRS is owed and what the IRS actually gets. Sometimes the audit is random, and the IRS chooses on the basis of the suspicious activity.
Here are some of the biggest reasons why you might likely land up in an IRS audit –
1. Making math errors
When the IRS starts their investigation, regretting the mistakes you earlier made is not going to cut it. This rule applies to everyone who files their taxes. Do not get distracted from filling out that final zero. Yes, mistakes happen but ensure that you double & triple check all numbers you had if you are doing the taxes yourself. You would be getting fines does not matter if the mistake was intentional or not.
2. Failing to report some income
Easy way to have an IRS audit at your business, do not report a part of the income. IRS already gets the required details of each part of the income, so there is no use in hiding it from the authorities.
3. Claiming too many charitable donations
If you have made substantial contributions to charity, then you are entitled to gain some well-deserved deductions. But if, in any case, you have reported any false donations and are not having the appropriate documentation to prove it, then do not claim it.
4. Reporting many losses on Schedule C
This advice is for the self-employed. If you are your own boss, you might be tempted in hiding the income by filing the personal expenses as business expenses. The IRS might then wonder how the business is still surviving.
5. Deducting too many business expenses
Along the same lines, reporting a lot of losses is like reporting too many expenses. To be entitled to a deduction, purchases need to be ordinary and also crucial for the business. You need to ask if the purchases were appropriate & helpful for your trade or business.
We hope you liked this blog on why the IRS will audit you. This blog is how you can expect the IRS to show and report everything correctly at your firm. You need to pay more attention to the account so that, in the end, you do not pay hefty fines.
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