An Internal Revenue Service (IRS) audit could sometimes mean that a tax return is flagged for being inaccurate. In this article, read and find out how to avoid getting audited by IRS!An audit from the Internal Revenue Service (IRS) is a fear of several taxpayers during tax season. Unfortunately, this fear causes tax deductions to be unclaimed. This means that the money that rightfully belongs to a taxpayer may be left in the hands of the IRS. However, being audited by the IRS is not that common. Money.USNews says that according to 2020 statistics, the chances of being audited by the IRS is only 0.3%, as reported by Valles. To avoid being audited, here are some red flags the taxpayers must avoid.
Not Reporting All Income
According to Valles, this issue happens often with the self-employed or to those who receive money from different corporations, estates, and trusts. If money is received from a part-time job, it must also be reported and paid taxes on. All 1099s need to be reported accurately on tax forms.
Claiming a Home Office
One cannot claim any space in their home as an office even if the space is used for business. According to IRS, the space, even if at home, must exclusively and regularly be used for business. It must also be the main location of the business.
Reporting Business Losses
The IRS will not consider a business as legitimate if profit is not gained from it. One can guarantee reporting profit by discarding some deductions. Unlike all business income that must be reported, reports on expenses do not have similar requirements.
Getting Advance Child Tax Credit Payments
The government paid half of the child tax credit in advance for 2021 and decided to pay the other half after tax returns are filed. The IRS 2022 Audit Plan intends to evaluate payments to guarantee that recipients of the payments were qualified.
Taking Early Withdrawals on Retirement Accounts
The IRS assesses people who withdraw out of their retirement accounts early. There is a standard 10% penalty for early withdrawals, but there are some exceptions.
Earning More Than $200,000
According to Valles, when a person earns more than $200,000, the chances of being audited are greater. According to TurboTax, around 4% of people with that amount of income will likely be audited. One of the reasons why is that these people have more chances to invest some of their income. Investments make income tax forms more complicated. Thus, the IRS believes there is a higher chance that some important numbers will be omitted from the tax forms.