These are the signs that alert the IRS of a needed audit.
Every year, taxpayers stress about the risk of having their finances magnified by the government. The IRS audits less than 1% of tax refunds. There are multiple reasons the returns draw the attention of the agency.
You can use this guide to reduce tax-related stress. If you’re worried about the chances of being audited, keep reading. Here are the top five red flags.
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1. Misreporting Income
The IRS reviews what you show versus what your employers reported. If you mess up on calculations, they’re going to flag your return. You should ensure you have all of your W2s and 1099s before submitting information to the agency.
2. Major Changes Reported
People who report changes to their income are going to need to provide detailed information for how you got there. You can prove an increase in pay with paystubs and accounting. Whatever you don’t account for will heighten your risk of being audited.
3. Earning Over 200k
The more you make, the higher your chances of being audited. The people who make over 200k are the ones who have to worry the most. Especially those who bring in an income of one million or more in a year.
4. Wrong Identification Information
You need to check that your tax forms have the correct information. The IRS is on the watch for identity theft during tax season. Incorrect Social Security numbers will attract scrutiny and rejection.
5. Excessive Charitable Donations
There are rules for documenting charitable donations to receive deductions during tax season. The IRS will want proof of your contribution amounts and will compare to your reported earnings for the year. People who can’t prove the total they donated and have income discrepancies can expect to hear from the agency.
More Things That Increase Your Chances of Being Audited
The IRS is looking for people who are not paying their annual taxes. If you’re worried about the agency, you should learn everything about what could put you at risk. Here are other explanations for why you could be audited by the government:
- Low income
- Inconsistent alimony or child support reporting
- Excessive meal and entertainment expenses
- Owning a cash business
- And more
The good news is there are ways to reduce your chances of being audited. When you continue to make tax payments on time and keep detailed accounting, you won’t have to worry about the consequences.
Independent contractors wondering, “Can I make a fake pay stub to prove income?” should learn more about how taxes work for 1099 employees and self-employed individuals.
Protect Your Finances Today
Protecting your finances from the IRS starts with prevention. Now that you’ve learned these five red flags, you can reduce your chances of being audited. With this guide, you’ll avoid the agency and their prying eyes.
There are more ways you can protect your finances. We feature the latest in business, services, and more. Explore our blog longer for more information!