“We’re being audited”. This is a dreaded phrase that elicits universal empathy from anyone who hears it. Whether you are an individual or a business, the prospect of an audit means hours of extra work and the possibility of a dramatically higher tax obligation. If the audit goes badly, then there is the additional time and expense of challenging the audit findings by way of tax appeal or in tax court.
While there are times when audits are entirely unpredictable; there are also numerous factors that tax attorneys have seen raise flags for the IRS and trigger an audit. If you keep the following factors in mind, you may be able to reduce the risk of an audit.
- Human error. One of the most common errors that stick out to auditors is simple human error in preparing an individual or business tax return. This may include miscalculations, misplaced decimal places, entering numbers into the wrong boxes, or typos.
- Failing to report income. This may occur when the IRS receives reports from your employers, which you do not disclose in your return. This is common when taxpayers have multiple sources of income. If you are getting income from freelancing work, be sure to account for that income in your return.
- Reporting excessive business expenses. Over-reporting the use of your personal vehicle for business use, as well as high meals and entertainment expenses will result in an audit if your percentages are high compared to other taxpayers in a similar occupation.
- Higher income. It has been demonstrated that individuals with income of greater than $200,000 are dramatically more likely to face an audit than those who make less. The reason is that these returns are generally more complex and because there is more money for the IRS to pursue.
- Undisclosed foreign accounts. The Foreign Account Tax Compliance Act mandates disclosure of foreign accounts to the IRS. What this means is that if you have an account with a foreign bank, and that bank reports your assets, your tax return better match what the IRS already knows. Failure to disclose or inaccurate disclosures are taken very seriously by the IRS.
- Disreputable tax preparer. If you hire a tax preparer with a shady reputation, there is a real possibility that your return will be audited en masse with other returns filed by that preparer. If you are enticed by a tax “professional” who is guaranteeing a large refund before having even seen your records, take my advice: turn the other way.
If you are concerned about the possibility of an audit, or if you are being audited, you need help. I have been a tax attorney for over twenty years and have a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court. My team and I will listen to your concerns, review your records, and provide you thorough legal counsel. Contact The Law Offices of Robert S. Thomas at 847-392-5893 or visit our website today.