Eager to avoid a tax controversy? Let’s talk about how to steer clear of filing a false tax return or one that is likely to attract the attention of the algorithms or personnel employed by the Internal Revenue Service (IRS).
Overall, the chances of your return being audited are pretty small. That said, the IRS software that flags tax returns for review is more comprehensive than humans sorting through returns. Consider these tips for dodging a civil audit this season:
- High-assets: The IRS is taking heat because it has focused on mid-and lower-income returns in recent years. If you have significant wealth, or earned in the high figures this year, make sure your return is accurate and complete. Big swings in income, profit, or loss, are also likely to draw attention.
- Report all income: Earnings across the board must be reported on your return. Remember, the IRS receives copies of your 1099 and W-2 forms. If your numbers do not add up, it is a very easy way to slip into an audit pile.
- Schedule C: For individuals who are self-employed, Schedule C can be a tip-off for the IRS. Businesses with high cash volume or those that take big losses on Schedule C could draw scrutiny. In the same vein, if you are claiming a Home Office deduction, be sure your workplace measures up. Schedule C is an important way to take legitimate deductions if you are self-employed, make sure you look over your schedule before submitting to ensure you can justify what you claim.
- Horse farms: If you have an investment in a business that loses money for several years, be aware the IRS may contest the business loss and classify the investment as a hobby—which will disallow your deduction.
- Spousal support: After 2018, money paid for spousal support is no longer deductible. Support paid under agreements signed before 2018 is still deductible.
- Taking losses on rental property: Taking losses on rental property is likely to raise a flag. Deductions may be scrutinized to clarify your standing as a real estate professional, otherwise there are limits on the loss amounts you can claim.
- Check the math: Mismatched numbers, names, and other information can quickly end you up on an audit list. Make sure information is accurate and your numbers literally add up.
Audits happen. If you are confident of your returns when you sign and submit, you are already ahead if you receive a letter from the IRS requesting a review. Call a good tax attorney before you respond to the IRS.
Tax Lawyers provide strong representation when you face IRS inquiry
The legal team at Robert J. Fedor, Esq., LLC represents business and individual clients responding to allegations of tax fraud, or involved in a tax litigation. When you need experienced tax advice locally or internationally, call 800-579-0997 or contact us.