What are some red flags that can trigger a tax audit?

It's always worth knowing your financial situation, not just when it comes to paying taxes. Here are some of the most common triggers for IRS audits:. For example, if you work as a contractor, the company that pays you will report your income at a 1099, usually a 1099-MISC. If you receive a 1099, W-2, or other income document and you don't declare it, the IRS will note the discrepancy and follow up.

From there, it's only a matter of time before you receive a CP2000 letter in the mail informing you of a discrepancy in income or, worse, of an audit notification. You may receive a form from the IRS, such as a CP501 letter or, eventually, a CP504 letter, which means that the IRS believes that you owe money to the government. This is not an audit and here you have several options. You can also receive a CP2000 letter, which is also not an audit.

A CP2000 letter only means that the IRS has noticed a discrepancy between the amount of money you reported earning and the amount of money that other people reported earning. This could be because you didn't report the income of a 1099, for example. Again, you can pay unreported income, challenge, settle the matter, or wait for the IRS to act through a tax, which is usually not ideal. For most Americans, any letter from the Internal Revenue Service creates fear, especially a notification of a tax audit.

If you're one of the millions of business owners navigating the difficult landscape of small business accounting, it's normal to worry about making tax errors or accidentally sending red flags to the IRS for an honest mistake. While some audits are random, many others begin when the IRS points taxpayers out of suspicious activity. This publication should be used for informational purposes only and does not constitute legal, commercial or tax advice. For the government, auditing a small business owner for a discrepancy of a few hundred dollars is not worth as much as auditing a multi-billion dollar company full of people with high incomes who may be hiding tens or hundreds of thousands of dollars.

If you have large legitimate entertainment expenses every year, simply keep credit card receipts and records of their use to prove your credibility in case the IRS questions them. If you can prove that your contributions are legitimate, the IRS is likely to thank you for your generosity and will be looking for someone who abuses tax deductions for charitable donations. A tax resolution expert can help you with a wide variety of issues, such as explaining your options, clearing up any confusion surrounding payments, double-checking to ensure that the IRS hasn't made any mistakes on your part, and even negotiating with the IRS on your behalf. However, that won't stop you from being audited or fined if you make a significant mistake on your tax forms.

Make sure you understand the regulations and follow them carefully to avoid raising a red flag for the IRS. These professionals can help you prepare taxes, file them, and answer questions about your taxes to the IRS if needed. By working with an accredited tax firm such as ATBS, you can rest easy knowing that your taxes will be processed correctly and that the risk of an audit will be significantly reduced. There's not much you can do to avoid a random audit; after all, it's random, but you can be proactive by avoiding well-known auditing triggers.

After all, cash transactions don't leave the same paper record as credit card transactions, and the IRS loves having a good paper record. You can work with a registered agent, certified public accountant, or tax attorney to represent you in your relationships with the IRS. If you're preparing your own tax forms, review them thoroughly to make sure you haven't forgotten a zero or placed a decimal in the wrong place. .

Stewart Schlageter
Stewart Schlageter

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