Texas taxpayers submitting their tax returns typically want to avoid IRS audits at all costs. Just the thought of having to meet with the IRS or having an auditor at your home can be scary, to say the least. The best way to avoid an IRS audit is to not fall victim to making the following mistakes.
Not reporting all of your income
Unreported income is one of the easiest ways to get a red flag from the IRS. Whoever is paying your income will report that to the IRS. If the IRS sees that you are not reporting any income from that particular entity, then they suspect that you’re not reporting all of your income. It’s best to always report your income.
Earning more than $200,000
IRS data shows that during 2019, the IRS audited 4% of people who earned over $200,000. Compare that to the IRS auditing just 1% of those who earned less than $200,000 that year. It becomes clear that earning more can get you a ticket to being audited.
Excessive business tax deductions
Due to the loose interpretation of business expenses by many business owners, they end up having an excessive amount of deductions on their tax returns. When the IRS evaluates tax returns, it will look for a certain threshold in regards to the percentage of income claimed as business tax deductions. One needs to realize that the percentage is going to be different depending on the exact profession of the business.
When tax season rolls around, most people want to avoid having contact with the IRS. Unfortunately, those who commit the three mistakes above tend to raise red flags for the IRS. If you have been notified by the IRS that you’ll be undergoing an audit, it’s advisable to seek the assistance of a lawyer to ensure that your best interests are looked after.