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Don't Get Audited: Avoid These 6 Common Tax Mistakes

Don't Get Audited: Avoid These 6 Common Tax Mistakes

Filing season may be. Stressful time For many Americans. A challenge to navigate Many forms And Compilation of all correct information Tax season can turn into an overwhelming marathon of paperwork for many taxpayers.

The increased risk of an audit can add to the stress of tax season. Besides that, The IRS said It is adding staff and technology to “reverse historically low audit rates” on high-income taxpayers through 2024. Tax season.

According to the IRSan audit is simply a review of your accounts “to ensure that information is correctly reported in accordance with tax laws and to confirm that the amount of tax reported is correct.”

Regardless of whether you're among the “high-income, high-wealth individuals” the IRS is targeting this year, your chances of being audited are still slim: In 2022, the IRS will receive about 165 Of the million returns, About 626,204, or less than 0.4%, audited.

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Federal tax return reviews can be initiated randomly, but certain behaviors are more likely to be flagged than others. According to IRS, Audits are determined by a “statistical formula” that compares your return to other taxpayers.

Here are some common mistakes that lead to more scrutiny from the IRS and what you can do to avoid them.

For more tax tips, Check out our tax filing cheat sheet. And Top Tax Software for 2024.

1. Your return is incomplete.

“There's no one thing that automatically triggers an audit, but mismatched documents are the most common reason you'll get a letter from the IRS,” says Joe Willetts, director of tax resources. Jackson Hewitttold CNET.

It can be as simple as a missing look, Willetts said, “and often happens to people who rush around at the last minute.”

The federal government offers different types of credit, such as: Child tax creditwhich allows parents to claim up to $2,000 per eligible child.

You have to show you're legally eligible for these benefits, Willetts said.

“If, last year, you didn't claim the child tax credit and this year you claim three children and they're not children, that will trigger a letter from the IRS,” she said.

It doesn't always mean you've made a mistake or are trying to fool the government. Maybe you had a baby in May 2023, and the IRS is working on your 2022 return.

2. You messed up math or other information.

While simple math errors don't usually trigger a full-blown examination by the IRS, they will garner extra scrutiny and slow down the completion of your return. This can include entering your Social Security number incorrectly, transferring numbers to your address, and other mistakes.

Electronic filing Reduces these foul-ups by pulling lots of information from previous returns and allowing you to load your W-2s or 1099s directly into the system.

Using a professional tax preparer is also a good way to guard against mistakes and miscalculations.

3. You are self-employed and do not report deductions correctly.

“If you're self-employed and have legitimate business expenses, you should feel empowered to deduct them,” said the TurboTax tax expert. Lisa Green Lewis. “Just make sure you have receipts and documentation to back it up.”

If you claim a home office deduction, it must be a space used “exclusively and regularly for your trade or business” — not a dining room table.

If you claim transportation expenses, you will need to document the mileage used for work. If you deduct 100% of your personal vehicle as a business expense, that should raise a flag, Green-Lewis said.

Being diligent is especially true when cutting business meals. In 2021 and 2022, business meals could be 100% deductible, but now, the limit is reduced to 50%.

“But you have to document who you're with, what the purpose of the meeting was, the date of the meal, etc.,” Green-Lewis said. “And of course keep your receipts.”

4. You claim too many business expenses or losses.

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The IRS computer system looks for deductions that are out of the ordinary for people in your profession.

Angela Lang/CNET

If you have income from a business, you need to file a Schedule C form, but this complicates your return and makes it more likely that you will be contacted by the IRS.

Greene-Lewis encourages taxpayers to claim every deduction to which they are legally entitled but to be extremely diligent in justifying those deductions with details and supporting paperwork.

Overall, the IRS algorithm is looking for deductions that are out of the ordinary for people in your profession: If you're a patent attorney but your travel expenses are three times what other patent attorneys claim, it's almost May lead to inspection.

If you've had losses in your business for several years in a row, the IRS will want to make sure your business is on top of things.

According to Thomas Scott, tax partner at the CPA firm AprioSmall business owners with sloppy records often make unnecessary deductions.

“When a business owner covers expenses and deductions, they stick with it,” Scott told CNET. “Under an audit, the IRS will require supporting and substantiating deductions and will disallow those deductions if not provided.”

On a similar note, Scott added, “Businesses that try to take incentives and credits they don't qualify for can cause red flags.”

5. Your charitable deductions are too large.

If you itemize your deductions, you can claim the value of donated cars, clothing and other property in addition to cash donations to recognized charities. If these contributions don't match your income, the IRS gives notice.

The agency's computer program, the Discriminant Information Function System, continuously scans returns for such anomalies.

“If you've claimed a charitable deduction that's like half of your income, that's going to catch their eye,” Green-Lewis told CNET.

The IRS limits how much of your adjusted gross income can be deducted as charitable donations. Some forms of donations. Can exceed this limit. But doing so is likely to be scrutinized, so you better have all your paperwork.

6. You have undeclared income.

This is the big deal: Employers are required to file a W-2 with the IRS that reflects your earnings, or in the case of freelancers and contractors who earn more than $600.

The IRS automatically checks to see that your reported income matches your boss's reported income. It also reports interest or earnings from savings accounts, investments and stock trading, as well as big gambling wins, inheritances and almost any other type of income.

If you fail to report capital gains on cryptocurrency trading, this could trigger an audit.

Even if you work in a cash business — as a waiter or babysitter, for example — unclaimed income can catch up with you.

“If someone is bringing their child to you for care, they're probably claiming your service on their taxes. So you have to make sure it's all aligned,” Wilts says. are “Even a small business like a house painter will require you to comply. It will eventually cross the IRS's desk.”

He further said that government institutions talk to each other. If you declare $20,000 in income on your tax return but, when you apply for a home loan backed by the Federal Housing Administration, you put down $80,000, that should raise a flag.

According to Aprio's Thomas Scott, small business owners who don't keep good records also tend to underreport, a major audit risk.

“Because the business owner hasn't kept their income for the entire year, they're guessing when it comes time to file taxes,” says Scott. “The problem with this approach appears because most earned income is reported to the IRS on Form 1099.

The IRS accepts suggestions from concerned citizens, so a disgruntled employee or disgruntled coworker can be very happy. To report tax fraudEspecially since the agency 2006 Whistleblower Program Potentially added between 15% and 30% of the incentives that the IRS collects.

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