While filing taxes is always stressful, learning you have an audit on the horizon can be truly nerve-wracking. Most people, including business owners, never face an audit. However, certain triggers or random selection can raise red flags that place you on the audit schedule. Learning about the common causes of IRS audits in Richmond can help you decrease your risk factors. If you received an IRS audit notice, a skilled tax attorney could help you prepare for your appointment.
Sometimes, an individual or business in Richmond faces an audit due to random sampling. More often, the IRS selects tax returns for audits because they follow specific risk patterns. Various factors can trigger an audit, and they do not always signal that wrongdoing has occurred.
Some of the most common triggers for IRS audits in Richmond include the following:
A single small error or unusual circumstance is unlikely to result in an audit. In such a case, the IRS would be more likely to send a letter requiring the tax filer to submit a new filing to fix the error. However, repeated instances in consecutive tax years of claiming excessive deductions or donations, or unlikely calculations, are likely to trigger an audit.
Sometimes, audits are the result of computer screening or random selection. In these cases, a taxpayer’s return is compared against norms for similar returns.
Getting paid under the table is always a gamble because the transaction is likely to be reported elsewhere. Taxpayers who report income from their 1040 and think they can get away with not reporting freelance or outside work are likely to eventually be audited.
Deducting for business losses helps business owners accurately account for the income they receive. Yet, many are tempted to claim false or inflated losses. When a business loses excessive amounts each year, the IRS will wonder how it stays afloat.
From business expenses like an expensive home office or costly electronics that do not align with your industry, excessive deductions can be a major red flag. The IRS narrowly defines what counts as a business expense to prevent taxpayers from deducting personal items.
The same goes for charitable donations. While some taxpayers make significant contributions to charity, the amount is unlikely to amount to a large portion of their income. Reporting false donations is a risk that will likely result in an audit.
Tax returns are legal documents often prepared by professionals. However, many individuals and business owners have the knowledge to complete their taxes on their own or with assistance from tax software. Tax preparers are culpable for their claims and mistakes, and each tax filer is responsible for providing accurate financial information. While there is no guaranteed way to avoid an audit, tax filers in Richmond can take certain steps to make it less likely.
Taking precautionary steps is well worth the effort when it comes to tax audits.
In some cases, an audit will reveal an error or an intentionally fraudulent claim. Frequently, audits are resolved with additional information that shows the tax return is valid. No matter the outcome, the stress triggered by an IRS tax audit is hard to avoid. Learning the common causes of IRS audits in Richmond is one way to avoid making mistakes that trigger audits. However, if you still have questions or concerns, an experienced attorney could help. Contact Whiteford Tax Defense today to schedule your consultation.