When you file and send off your tax returns each year, you do so with the hopes that you will not be selected for an audit. In truth, you and every other taxpayer can be selected for an audit for any number of reasons.
When you want to minimize your chances of being singled out for an audit, you should understand some of the top reasons the IRS chooses one return over another. This information can help you file your taxes while avoiding some of the more common audit triggers.
1. Random Selection
Unfortunately, you cannot do much to reduce your returns' chances of being chosen at random by the IRS' computers. The computer system each year randomly selects a number of returns to be audited even if nothing is wrong with those returns.If you are chosen at random, you can go to your auditing session with confidence if you have followed the tax laws and been truthful with your information. The chances of being chosen at random are very small; however, it is one of the reasons for which the IRS could audit you.
2. Failing to Report Income
If you have not been truthful and have purposely avoided reporting income from the IRS, you put yourself at risk of being audited. When you file taxes, you must include income from:- W-2s
- 1099s
- Dividends on stocks, bonds, and other investments
- Interest on interest-yielding accounts
- Casino or lottery winnings
3. Claiming Charitable Donations
You legally can report charitable donations on your taxes. However, people who embellish their donations cast themselves in a suspicious light to the IRS.It can be tempting to report more than you actually donated in the hopes of getting more money back in your refund. However, lying about your charitable donations could lead to your being audited and heavily penalized.
4. Claiming Too Many Business Expenses
The IRS allows business owners to recoup some of their expenses related to running their businesses. Some of the expenses you can claim include:- Gas or vehicle expenses
- Meals
- Entertainment
- Cell phone bills accrued from your business
- Travel expenses like hotel costs
5. Claiming the EITC
Over 20 million people each year claim the Earned Income Tax Credit. This credit is designed to relieve the tax burden of the working poor and people who have qualifying dependents.Because the amount of money received through the EITC can be substantial, some people try to take advantage of it by claiming dependents for which they are not legally responsible or who do not live with them. The IRS wants to make sure this money goes to taxpayers who legitimately qualify for it and thus are more likely to audit those who claim it.
6. Mathematical Errors
Anytime you miscalculate the figures on your tax return, you invite an IRS audit. As this agency checks your return it will investigate numbers that do not add up or do not make sense to it.
When you want to avoid this simple, yet regrettable error you should use a calculator rather than manually figure your calculations. You also may use an online tax filing program or hire a tax professional to do your taxes.
7. Making More Money
Most people make it a goal to earn more money each year. However, claiming more money on your return signals to the IRS that something may be amiss with your return.
This fact particularly holds true if your income significantly increases and goes past the $200,000 per year mark. The IRS will want to know how and why you are earning more and ask for proof that the money comes from legitimate sources.
Being audited ranks high for many people as something to avoid. You can reduce the chances of your return being singled out by knowing the common reasons why the IRS audits taxpayers.
