Beware of Tax Audits and the Clear Danger They Present
Every Year during tax time many Americans start to get afraid because they have to prepare their tax returns. This task causes anxiety for many people, and is avoided to the last minute for many others. Most of us know that if the IRS is involved then we have reason to be afraid. Audits are on the rise and they can be very intrusive and intimidating. It is important to understand what causes an audit and how to know if your return will be flagged for an audit.
Most taxpayers are unaware that the IRS utilizes a certain formula to calculate certain issues on your return. So here are some things to look for that will get you audited every single time. First excessive deductions will get flagged; dependents get flagged because fraud with dependents is on the rise. Federal withholding that is more than 2% of your total income will be red flagged. Stocks, foreign bank accounts and rental property are also items that get flagged.
When an item gets flagged this means the IRS will pull your return and take a further look at it. They then look at your past three years of returns to see if these are items you reported before or if these are new items. If these items are new and have not been reported before, you will receive an audit letter.
If you work in a certain profession you are surely more prone to get audited. There are several professions that the IRS assumes automatically cheats on their taxes. Those professions are doctors, dentists, and attorneys, CPA’s and believe it or not truck drivers. Although it is not fair for the IRS to prejudge any profession, the fact is they do this all of the time. It is a little known secret they assume you will never find out.
The more we continue to see with identity theft and the IRS continuing to pay out millions in double tax returns, we are going to see more and more audits for the simplest things. The smartest thing that taxpayers can do is to be sure to protect themselves against such intrusions by ensuring their returns are prepared properly and have little to no risk of being audited. Once you are audited once, you are more likely to continue to be audited every year after that. Protect yourself and avoid the clear and present danger that is taxes and being audited. Below are some tips that will help you reduce your chances of being audited.
o Have proof of all your deductions
o Have report cards for all dependents claimed
o Have receipts for all expenses
o Have copies of all your tax forms
o If you are business owner have separate business account
o If you own stock be sure to have proof of all buy/sell items
o Keep all copies of your bank statements. If you are audited an auditor will ask for the past year of bank statements
o Have tax return prepared by a professional CPA or accountant that can offer audit representation
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