If You Are Worried About Tax Audits, Avoid These Mistakes
Every year, thousands of Americans submit their tax returns. The Internal Revenue Service (IRS) has specific protocols they need to follow every year to process millions of tax returns from taxpayers throughout the United States. In general, it is implausible for the IRS to conduct an audit on an individual’s tax return.
If you are wary of tax audits, you must be mindful of potential mistakes that might trigger an automatic audit on your tax returns. An audit does not necessarily mean that you are trying to defraud the IRS, as audits get triggered for even the most common mistakes that might indicate potential malfeasance.
In this article, you will find all the mistakes you should be wary of to avoid likely tax audits. We will break down all the typical red flags for tax audits and how you can drastically lower your chances of facing trouble with your tax filings. So, without further ado, let’s get started.
Returning A Wrong Taxable Income
It is essential that when you are returning your taxable income, you are not estimating or guessing how much money you have made over a year. Your numbers should add up, and the calculations need to be immaculate and precise. Therefore, make sure you are double or even triple-checking your math before submitting your papers.
A simple involuntary miscalculation can set off alarms in the IRS and make you go through an unwanted tax audit. Remember that the IRS continually evaluates which accounts to audit based on the disparities in your report. As a result, there must be no mismatch between what you have reported on government-issued forms and the calculations on your tax returns.
Underreporting Income
When you are filing your tax return, you are always required to report all of your income. If you cannot declare the whole of your income over a particular year, you might be compelled to face an IRS agent.
If you receive a CP2000 letter, the IRS has detected a disparity in the information provided on your remuneration or payment information against what you reported on your tax return. Regardless of the nature of your income, be it from your work or the sale of an asset, it is imperative to put them all on your report.
Underreporting your income on your tax returns is a serious offense that can lead to a slew of IRS problems. As a result, before filing your tax returns, you must deposit all of your income into your account.
Forgetting The Signature On Your Tax Return
It might seem like an innocuous mistake, but forgetting to sign your tax return happens all too often for many people while they file their yearly tax returns. If you submit your tax return without a signature, you can rest assured of going through a probe that can trigger an assessment on all your forms.
Given the hassle a missing signature can cause, make sure you carefully read through your tax forms and fill in all the details as meticulously as possible. After making sure you have filled everything out accurately, sign your documents carefully and submit your tax return before the deadline.
Skipping The Details Of The Deductions
Before submitting your tax files, you must select the deductions with as much care as possible. As it happens, a suspicious amount of deduction without proof of expenditure can raise the IRS’s eyebrows. Overestimation of business and itemized deductions such as meals, travel, and donations are the frequent reasons why an audit is triggered.
It is imperative to remember that any number that might not add up will only incentivize the IRS to scrutinize it for possible wrongdoing. Therefore, if you are filing for tax, ensure that you provide the necessary documentation to back up the deductions you are claiming.
It might even be the case that the IRS might ask for proof of your expenses. Keeping a good track record of your deductions is essential to claiming them on your tax returns.
Mismanagement Of Personal Records
How neatly one manages their record determines the chances of that person being audited by the IRS. It is especially applicable for those who happen to be a business proprietor or a freelancer who has a lot of cash transactions in their bank accounts.
If a taxpayer does not provide necessary documents as supplements to back up the pieces of information they are presenting in their tax returns; it is almost a certainty that such a mismatch of personal records will result in triggering an audit process by the IRS.
As a result, you must be well prepared with every possible information they might ask for in case you get audited. Keep in mind that it is customary for every taxpayer to keep individual tabs on their personal and business expenses so that no mishandling of personal records occurs. Separate bills for different expenses are helpful to avoid mismanagement of personal papers.
Excluding Donations From Your Tax Returns
If you often donate money to charitable or non-profit organizations, you can use the receipts as deductions from your annual income. Many people are unaware that donations can also qualify as deductions on their tax returns.
As a result, excluding contributions from the tax returns is a common mistake you should avoid before filing your tax returns.
Conclusion
Many people find tax audits and the IRS intimidating. When it comes to filing tax returns, if you aren’t careful at every step of the process, you might end up making mistakes that will cost you a lot of money. For the most part, you can avoid a lot of tax-related red flags if you pay attention to a few extra steps while filing your tax returns at the end of the year.
Discrepancies in your tax file can make life difficult for any taxpayer. As a result, you must take as many precautions as possible to ensure that your tax filing procedure goes well. Hope this helps and thanks for stopping by.
