If you are sick of audit triggers making life miserable every year, these tips will clue you in on what you are doing wrong.
Have you suffered through a tax audit in the past? Are you trying to avoid needless audit triggers this year? Then it is important to understand a few of the most common tax audit triggers. If you don’t carefully manage your return, you’ll gain the interest of the IRS. That’s not what you want!
Basic Criteria That Trigger a Tax Audit
Before going into the most common triggers, it is worth understanding the basic reasons the IRS decides to audit someone. The official IRS website states that they occasionally select returns based on a random statistical formula. Obviously, there isn’t much you can do to prevent this kind of audit from happening besides crossing your fingers and hoping for the best.
However, the most common form of audit comes when they receive a suspicious or concerning return. There are several situations the IRS sees as suspicious. Understanding them can help you avoid falling victim to these common tax audit triggers.
#1: A Surprising Income Disparity
If your tax return shows that you make more income than others in your profession, the IRS may trigger an audit. While it is always possible that you simply make more money via skilled investment or through raises, the IRS will want you to prove that to them. This usually requires showing payment slips or similar paperwork.
#2: Too Many Charitable Deductions
While the IRS will reward you for making charitable deductions, too many will catch their eye. That’s because they worry you may be hiding your income or attempting to write off an excessive amount of lost income. There is no real threshold here for an appropriate amount. You just have to play it by ear and donate only when you feel it is necessary.
#3: Operating a Home-Based Business
Those who run a home-based business are often at risk of getting audited. That’s because it is easy for them to fudge the numbers if they choose to try it. There are also several deductions the IRS considers suspicious for these types of businesses, such as excessive travel, meal, or entertainment deductions. Try to balance out these costs to avoid triggering a tax audit.
#4: Rounding or Averaging Your Numbers
You want to make sure you don’t round your expenses or deductions up or down when reporting your taxes. This common tax audit trigger makes the IRS suspicious that you are being sloppy or poorly reporting your income. As a result, they are likely to take steps to audit you and see exactly what you spent or earned last year. This kind of audit is quite exhaustive and detailed, so make sure you have your receipts in order.
#5: Over-Claiming Your Vehicle Expenses
If you use your vehicle for business needs, it can be tempting to claim as many deductions as possible. However, that can trigger a tax audit. Claiming 100 percent business use of your vehicle will likely cause the IRS to ask for your records and mileage logs. These logs include the dates of the trips and why you went on them. Avoid this hassle by claiming only partial business use for your vehicle.
As you can see, there are many important considerations to take into mind when avoiding tax audit triggers. However, properly filing will help keep you free from this annoying and sometimes expensive process. Even if it requires you to pay more taxes than you’d like, it is worth avoiding the audit.