As tax time approaches, you need to gather all the information necessary for tax preparation. Whether you use an accountant, tax preparation service, or do your taxes yourself, there are some things to avoid if you are worried about an audit. Let’s talk about some of them now.
1. Failing to Report All Your Income
It’s essential to keep in mind that all the tax forms you receive to document income are also sent to the IRS. Make sure to report all income on your tax return, including income from 1099s, to avoid being flagged for an audit.
2. Getting Sloppy with Your Business Expenses
When you are claiming expenses for your business, it’s a good idea to get advice from an accountant. If you don’t keep good records of your costs, or blur lines here and there, you increase your chances of being targeted in an audit.
3. Failing to Report Balances in Foreign Accounts
Many people have the perception that if you have a foreign bank account, you must be trying to hide money. Although that may be true in some cases, there are a variety of reasons why a person might have a foreign bank account. If you have the equivalent of USD 50,000 or more in foreign assets, you must complete a Form 8938, which identifies how much money you had at the end of the year, the highest balance you reached in a foreign bank account during the year, and identifying the bank in which the money is held.
4. Giving Huge Amounts of Money to Charity
Giving from the heart makes the world a better place. If you are a person that donates a lot of money to charity, the IRS may take an interest in you and want to scrutinize your donations. You may be flagged for an audit. Be sure to maintain receipts for all donations, in case you are audited.
5. Claiming a Home Office Deduction
It’s perfectly fine to claim a home office deduction, but be sure not to fudge the figures on this. The IRS says you must have a space in your home that is dedicated to your business. Multi-use rooms are not allowed. Claim the square footage of your office as a percentage of your total square footage of the home when calculating your home office deduction.
6. Claiming 100% of Your Vehicle Use as a Business Expense
This is a hot button you want to avoid. First, you must have two vehicles for this to make sense. Then you must keep a log of your business miles to show the IRS in the event you get audited.
7. Claiming a Deduction for Alimony
At one time, alimony was deductible, but that is no longer the case. If you divorced after 2018, the recipient of alimony does not have to claim it as income, and the person paying it does not claim it as a deduction. If you were divorced before 2018, the amounts claimed and deducted must match up, or you’re ripe for an audit.
8. Making Over $200,000 a Year
The more a person makes, the more likely they are to be audited. When you earn over a million dollars annually, the percentage goes even higher. Basically, the more you make, the more the IRS is interested in looking at your tax return.
9. Making Math Errors on Your Return
When you commit math errors on your return, it tends to make the IRS wonder what other mistakes you might have made. Check your work (a couple of times) before you send in your return. If you’re not sure of yourself, have someone else check it for you.
Get the Help You Need
If you want to avoid these flags and get an accounting firm to help with your tax return, JStevens Accounting offers tax preparation services. We treat every customer with respect and work to understand your tax position. Contact us today so that we can evaluate your tax needs.