The last thing you want is to receive a letter from the IRS saying that you are being audited. For many, just the thought of being audited sends them into anxiety mode. Most taxpayers who are audited are selected randomly, but there are some mistakes you do not want to make that can trigger an audit. This is why it is important to get your tax return prepared accurately and timely by a trusted tax professional rather than prepare it on your own. Some of those triggers that put you in danger of an audit include:
- Obvious or Almost Obvious Outliers – Refrain from being an outlier without substantiation. The IRS has software that holds data typical for a number of professions and income levels. Your return is typically run through that software. If what you have on your tax return is significantly not within those typical limits, it can be flagged. Some of those items include business expenses, charitable contributions and itemized deductions. In cases where these amounts are valid but flagged, the key is being able to substantiate the numbers. The burden of proof will be on you. If you do not have the support to substantiate those numbers you will be in danger of losing the related deduction or tax benefit AND will have to pay retroactive taxes and related penalties based on the amount of the deduction you lose.
- Incorrect calculations – This is most common among people who do their taxes on their own. The errors may occur in deductions, taxes due qualified business income etc. just to name a few. These could trigger an audit. In fact a large portion of the examination letters the IRS sends out are related to miscalculations.
- Incomplete or Undisclosed Information – Always keep in mind that the forms you receive each year like your W2, 1099s and other tax documentation are also provided to the IRS. If the data included on those forms are not reflected on your tax return there is an automatic trigger.
The key to breezing through an audit is to keep proper documentation in an organized manner. When you have proper documents any audit issue can be resolved speedily. When you do not, the process could be a very stressful nightmare. You must maintain documents in support of ALL the deductions you take. Documentation should include receipts, charitable donation statements; mileage tracking (that meets IRS guidelines), business meals documentation (that meets IRS guidelines), credit card statements, canceled checks to name a few. Being ready for an audit with the right records at your fingertips will significantly reduce your stress if you are ever selected. Depending on how good your record-keeping is, it may even turn out to be quite a seamless process. If you need assistance deciding what documentation you need to keep, feel free to give us a call at (540)-538-6995 to schedule a time to chat with one of our trusted tax professionals.
Natasha Dornbush, CPA
www.youraccountingrelief.com
