The mere mention of an audit by the Internal Revenue Service (IRS) can make anyone feel anxious. Although audits are relatively rare, making common mistakes on your tax return could significantly increase the likelihood of facing this dreaded scenario. Here is a list of errors that could put you on the IRS radar and how to avoid them:
1. Income Reporting Errors
- Underreporting Income: Not reporting all income earned during the tax year can catch the IRS’s attention. Make sure to report all income, including that from side jobs, bank interest, and dividends.
- Inaccurate Reporting of Investment Income: If you have investments, ensure you correctly report the income generated from them. Errors in this area are easily detected by the IRS.
2. Exaggerated Deductions and Credits
- Inaccurate Itemized Deductions: Exaggerating itemized deductions, such as those related to medical expenses or charitable donations, could trigger an audit. Keep precise records and ensure you meet the specific requirements for each deduction.
- False Tax Credits: Claiming tax credits for which you are not eligible can be considered tax fraud. Make sure you meet all the requirements before claiming a credit.
3. Electronic Filing Errors
- Typos: Entering incorrect information, such as social security numbers or amounts, when electronically filing your return can cause problems. Carefully review all data before submitting your return.
- Omission of Information: Failing to include all necessary forms or relevant information can lead to discrepancies and possible audits. Make sure to complete all required fields and attach all necessary documents.
4. Unexplained Changes in Returns
- Significant Changes from One Year to the Next: Drastic changes in your returns from one year to the next can raise red flags for the IRS. Have documentation to support any significant changes in your finances.
- Deviation from the Norm for Your Income Group: If your expenses or deductions differ significantly from others in your income group, you might catch the IRS’s attention. Ensure your numbers are within expected parameters to avoid unnecessary questions.
5. Incorrect Reporting of Business Income
- Underreporting Business Income: If you are a business owner, underreporting business income can be a signal for an audit. Keep detailed and accurate records of all business transactions.
- Errors in Business Expenses: Reporting business expenses that are not legitimate or not well-documented can increase the chances of a review by the IRS.
Avoiding these common mistakes can not only reduce your chances of facing an IRS audit but also ensure that you file an accurate and complete tax return. Always keep detailed records and seek professional advice if you have questions or concerns about your tax situation.
Prevention is better than cure when it comes to taxes!
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