Every tax payer prepares his/her tax filing carefully however, still receive notice for audit. Even after cross checking and rechecking and eradicating errors, your name gets highlighted in the IRS’ systems. Why? For this question, you’d get numerous answers as everybody doesn’t carry complete knowledge about the tax law and only fraction of them are aware of the work ethics of the IRS. Following are some of the most common mistakes that we make or in other words things that we neglect while preparing our taxes and get into the trap named Tax Audit.
At times, we mention different amounts in state tax returns and federal tax returns with an impression that these are two different firms. However, IRS computers will pick your account if there is a slight difference between the amounts. If you’ve made this error in your tax filing chances are very bright that you’re going to be the lucky one to receive the notice for tax audit. How much you’ve earned in last tax year. If it was more than $100,000, you’d under the spotlight of IRS. Therefore, you should be ready with your income proofs so that you don’t need to pay anything extra as penalty or interest. In case, you’ve been earning more than $100,000 from last several years however, you’ve declared an earned income of $30,000 only. IRS will definitely love to check the reason of your low income.
Do you own a home office? If yes, you have an opportunity to avail deduction under business expenditure. However, there are few rules attached to it. If you miss out on any of the rules, IRS is ready to treat you like their guest. There are businessmen who believe in noble cause of charity and avail lot of IRS relief however, if you’re showing your kindness in excess and declaring high amount of charitable contributions, IRS would send you notice for audit so that they can get an explanation from you. Most of the times, taxpayers tend to avoid small dividends and they never keep the records of such small dividend. However, IRS’ systems are capable of cross checking all of yours dividends and interest. Even the smallest dividend can light up your name with red flag in the system.
While preparing taxes, you should never round up the figures. For example, you received a dividend of $248.6 and you’re rounding it off to $240. There are several fields that you should not be rounded off. In case, you’ve used rounding off method, you could be the top choice of the IRS to ask questions from. Tax credits are meant for tax payers, on whom someone is dependent, expending on business etc. However, if you’ve claimed large amount of tax credits be ready with the slips, invoices and bills to prove every tax credit you’ve claimed was genuine. Receiving IRS notice for audit is one the most dangerous situation, if you don’t want to get into it always, hire an expert tax professional.