The IRS can’t audit every tax return, so they use shortcuts to identify returns with major errors or red flags. If you have certain unusual items on your return, the computer programs used by the IRS may flag your return for closer scrutiny.
Some items that increase your audit risk may be unavoidable, such as filing a Schedule C if you are self-employed. Other items can be fixed quite easily, so check your return carefully and get help from a professional tax preparer if you have a complex return. If you do receive an audit notice, contact an audit defense attorney for assistance.
Forms That Don’t Match
The IRS receives information returns from your employer, your major clients if you are an independent contractor, and many other places. A computer program can easily spot a mismatch between your information returns and your tax return.
Make sure you wait until you have all of your W-2, 1099, and other informational forms before you file. A failure to include one of these forms can end up increasing your audit risk.
Schedule C—the form used by business owners and independent contractors—is a gift and curse for entrepreneurs. On the one hand, you receive the advantage of deducting many business expenses that employees can’t deduct. Because of the recent elimination of the deduction for unreimbursed employee expenses, some employees have to eat these costs without receiving any tax benefits.
However, filing a Schedule C also increases your audit risk. With the rise of the gig economy, many taxpayers have increasingly complex returns involving several 1099s and many different categories of business expenses. This leads to a higher probability you’ll make a mistake or attract unwanted attention from the IRS.
Your best option is to research the deductions that apply to your business carefully. If you aren’t absolutely certain that your return is accurate, use a professional tax preparer. You’ll get some peace of mind, and you can be sure you’re getting all the deductions you deserve.
Unusual Deduction Amounts
Two major areas of your tax return that can be abused are business expenses deductions and itemized deductions. When these deductions seem abnormally large compared to your income, the IRS will take notice.
Whenever you take a home office deduction, charitable contribution deduction, or mortgage interest deduction, make sure you have the proof to back up your deduction. If not, you could be in trouble if your return is audited and face tax penalties, interest, and back taxes.
Get help with an IRS tax audit by calling The Gartzman Law Firm at (770) 939-7710. We can communicate with the IRS on your behalf and dispute any adjustments made to your return.