Are you guilty of these common tax audit triggers?
The last thing you want to see in your mailbox is an envelope marked “Official Business” from the IRS. You’d never mislead the IRS intentionally. But it’s easy to call attention to yourself if you’re committing these tax audit triggers. Before you file your return, read through this list and make sure none of the following applies.
Trigger 1: Failing to Report All Income
You know all those income forms you get in the mail? Your W-2 from work, perhaps a 1099-MISC from a side business? They go to the IRS as well. If you fail to report any of these forms on your tax return, you’re guaranteed to get a friendly note from your pals in Washington.
While some forms (like 1099-MISC) can seem to only show a small, insignificant amount of income, it’s not insignificant to the IRS. You are only exempt from the requirement to report small business income if your small business grossed less than $600 over the course of the year. This means gross income only. If your net was in the negative due to business expenses, you still need to report if you grossed $600 or more.
Trigger 2: Over-report Business Expenses
When you’re doing your taxes, it’s tempting to over-report how much money you spent on personal business expenses. After all, you know that every dollar you spent is likely to increase your tax return. This might get you a bigger return in the short run. However, it’s not worth the hassle it will cause down the road.
Only report business expenses for which you have documentation. The last thing you want is for the IRS to call your bluff when you have no way to prove your expenses. Side note: If you’re not already filing away every single receipt for what you spend on your business (including gas, mileage, office supplies and postage), start doing that today.
Trigger 3: Failing To Report on Overseas Accounts
Ever stow money away in Italy, Sweden, or some other exotic locale? It’s easy to assume that the IRS won’t find out about it. Wrong! It’s important that you report all overseas accounts, as you are a US citizen and this money is taxable. You are only exempt from this rule if your overseas bank accounts contain less than $10,000. Perhaps you have gotten away with failing to report overseas accounts in the past. But the IRS has tightened up its scrutiny of these accounts in the past few years.
While this list includes a few of the most common IRS audit triggers, it’s by no means exhaustive. It’s easy to make mistakes on your tax return, and the only way to avoid all possible IRS triggers is to work with a certified tax professional. If you’re in Sacramento and surrounding areas, you’re in luck! Incompass Tax, Estate, and Business Solutions will work with you to make sure your taxes are correct the first time, without common tax audit triggers, saving you time, money, and headaches from worrying about audits.