Does the thought of a tax audit by the Internal Revenue Service (IRS) fill you with dread? You are not alone in your concerns over the possibility of an audit, as most other people feel the same way.
The stakes are high for those with complex finances (multiple income streams, valuable cryptocurrency, etc.) should an audit occur. Knowing what financial activities can trigger a tax audit could help you avoid or prevent them altogether.
Making high expenditures or deposits
The IRS receives a notice from banks and businesses when someone deposits or spends over $10,000 in cash. In turn, the IRS may order a tax audit to examine your income and learn how you obtained so much cash.
Running a cash business
Those who operate businesses that deal largely in cash are often vulnerable to a tax audit. However, if you do not live a lavish lifestyle that your reported income could not support, you probably will not trigger increased IRS scrutiny.
Owning assets in foreign nations
As you might expect, the IRS takes a keen interest in those who own assets in other countries. Putting these assets in nations with less strict laws is a common means of avoiding U.S. tax burdens. As such, auditors may look closely at your foreign-held accounts.
Earning a lot of income
High earners always receive more IRS scrutiny than those with low incomes. Those earning more than $500,000 are among the most-audited economic groups. The higher your earnings, the more likely a tax audit becomes.
If you have concerns about an impending tax audit or want to avoid triggering one, consider adding a tax law professional to your financial team.