An IRS audit occurs when the federal tax agency decides to scrutinize a taxpayer's accounts to ensure they're following tax laws. Although they're not common, it's best to avoid them if possible. Once in a while, the IRS picks random tax accounts to audit, so it's important to know the red flags that would trigger such a move. Fair, Anderson & Langerman is committed to helping you stay out of trouble with the IRS.
6 Suspicious Activities to Avoid
The following red flags increase the likelihood of an IRS audit:
Math Errors
While it’s normal for people to make mistakes, try your best to avoid them while filing your returns. Such mistakes involve switching figures, adding or forgetting zeroes or outright omissions. They usually occur when you file in a hurry, while tired or without understanding what’s expected. Regardless of the reason, the IRS will hit you with fines. To avoid such costly mistakes, hire a good tax accountant in Las Vegas to help file your returns.
Earning Too Much or Too Little
The more you earn, the higher the chances of being audited by the IRS. If your annual income exceeds $500,000, the tax agency might scrutinize your accounts in the belief that you might owe more taxes than you pay. The same is true if you report suspiciously low income. This can happen if you claim too many deductions. Having expenses that differ remarkably from other people and businesses in similar industries might also catch the IRS’s attention.
Self-employment
If you're a freelancer or sole proprietor, you're entitled to deductions such as mileage, travel, entertainment, and home office utilities. Be as honest as you can while reporting expenses in your Schedule C. The IRS has average expense rates for various professions, so reporting higher than normal figures is not advisable. You must also report freelancing and other non-wage income through Form 1099. Contact your tax accountant in Las Vegas if you are unsure of how to report income.
Cash-based Business
Cash-based businesses include taxis, car washes, barbershops, restaurants, and bars. The IRS believes handling cash may tempt you to underreport your income. They'll take a keen interest in your lifestyle and compare it to your reported income. If the two don't match, the tax agency will launch a thorough audit of your business.
Reporting Too Many Charitable Donations
Although you’re eligible for tax deductions on charitable donations, going overboard can be counterproductive. You must keep detailed documents to show the validity of your generosity. You must also never report false donations to charity. Ensure every foundation or charity you get involved with is duly registered and has transparent policies to avoid unknowingly becoming part of a scam. If the person or organization you donate to offers a gift in appreciation, you should either turn it down or report its monetary value while filing taxes.
Unreported Investments & Income
The IRS expects you to report any cryptocurrency and digital assets you hold. Failure to do so might attract a punitive audit. If you're unsure of how to go about it, contact your tax accountant in Las Vegas for guidance. The IRS also requires full disclosure of any interest or dividends earned from various investments.
Fair, Anderson & Langerman offers a wide range of financial services, including auditing, business consulting and tax compliance. If you’re looking for a tax accountant in Las Vegas, we have a team of financial experts at your disposal. Contact us today at 702-870-7999 and let us help safeguard your business from IRS audits.