The IRS Will Be on the Lookout for These Mistakes During the 2018 Tax Season
While the IRS audits just a small percentage of tax filers every year (less than 1%), getting audited can be a grueling experience. People who don’t file their taxes correctly and submit returns with “red flags” are more likely to get audited by the IRS.
Here’s how to avoid that.
- Check Your Math
Simple miscalculations are some of the easiest ways to draw attention from the IRS, as its computers are programmed to look out for irregularities. Your best bet to avoid popping up on their radar is to use tax preparation software or go to a professional tax account.
- Don’t Exaggerate Your Good Will
Writing off more than you’ve actually donated this 2018 tax season can also prompt a closer look from the IRS. Even if you’re the most noble of heart, if you didn’t write the checks or donate the goods to the extent you report, don’t say you did. Your charitable giving should be comparable to what’s within your means and what you’ve shown to have donated in the past.
- Saying You’ve Lost Money from Your Business (When It’s Actually a Hobby)
You may very well have sold some jars of homemade salsa last year, and purchased the supplies to do so. Just know that you can only claim a loss up to the amount you actually sold. Factoring in the cost of supplies for all your salsa making that occurred over the course of the year – such as salsa made for just yourself or a dinner party – is not a legitimate way to calculate loss.
- Withdrawing Money from a Retirement Account Early
If you have an IRA account, you’re typically not allowed to withdraw any funds from it until you’re 59 and a half. However, there are some criteria that would allow you to do so without penalty, such as retiring, being fired, or quitting a job after the age of 55. Otherwise, early withdrawals will be taxed 10% by the government. NOT reporting an early withdrawal when you don’t meet the criteria is a big no-no, and can catch the attention of the IRS.
- Excessive Use of a Vehicle for Business
Yes, if you’re self-employed (let’s say as a sales representative) it’s legitimate to write off vehicle expenses that come with your business travel. However, writing off all your vehicle expenses – including personal driving – can be a red flag for the IRS. That’s because you’re mixing business and personal expense. Only count your time spent on the road for business. The IRS keeps averages of typical travel per occupation, so reporting more than 20% excess of that average can trigger an alert.
While these aren’t all the mistakes that can prompt the IRS to take a second look, being mindful of these five can decrease your chances of getting selected for an audit. Work with an experienced CPA firm like Tobin & Collins. Contact us today!