6 Reasons You Can Be Audited by IRS

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The IRS performs tax audits in order to close the gap between what the IRS is due and what it receives. Even though the IRS frequently chooses individuals based on suspected activities, audits can occasionally be chosen at random.

Here are seven of the top warning signs that an IRS audit is approaching:

1. Screwing up your math

Everyone who files taxes should not make any mistakes. Avoid writing a 3 where an 8 should be. Avoid getting distracted and forgetting to add the last zero. If you're handling your own taxes, make sure to double- and triple-check all of your calculations. Whether or whether your error was deliberate, you will be subject to penalties. If you have any math issues, employing decent tax preparation software or a local tax professional will help you avoid costly mistakes that could result in an IRS audit.

2. Not reporting all income

How can you initiate an IRS audit? Do not reveal a portion of your earnings. Imagine you work as a sheep herder for Farmer Joe and earn a little extra money by writing articles for a magazine on sheep shearing. You could be tempted to withhold information about the freelance writing income on your Form 1099 and merely submit the W-2 form from your herding job.

1099 lists nonwage income from sources including interest, stock dividends, and freelancing. Independent contractors are normally reported on one sort of 1099, the 1099-NEC.

Guess what, though? It will only be a matter of time before the IRS notices your omission because it is already aware of the income reported on your 1099 because the publication provided it with a copy.

3. Trying to clain too many charitable donations

You are qualified for certain well-deserved deductions if you made sizable donations to charity. Common sense dictates that you shouldn't disclose fake donations. Don't claim your donation if you don't have the necessary proof to back it up. Pretty basic. Claiming a $10,000 charity deduction on a $40,000 income is probably going to get some attention.

4. Overreporting losses on a Schedule C

This one is for independent contractors. If you work for yourself, you could be tempted to claim personal costs as company expenses in order to conceal your earnings. However, take into account the suspicion that too many reported losses might stir up before you write off your brand-new ski boots. The IRS might start to question how your company is surviving. More details are available in IRS Publication 535.

5. Deducting too many business expenses

In a similar vein, reporting too many expenses is equivalent to reporting too many losses. Purchases must be both essential to your business and ordinary in to be eligible for a deduction. Paint and paintbrushes might likely be claimed by a professional artist since they satisfy both criteria. A lawyer who paints for enjoyment but doesn't make money off of the pieces might be in trouble. The following questions should be asked: Was the purchase commonplace and acceptable in the industry? Was it suitable and useful for the profession or business?

6. Claiming a home office deduction

Fraudulent home office deductions are frequent. It could be alluring to give oneself ill-gotten deductions for expenditures that don't really count. According to the IRS, those who use a portion of their house "exclusively and frequently for their profession or company" are eligible for the home office deduction. So long as you utilize your home office only for work, it can count. It is unlikely that your living room qualifies as a deductible office space if you sometimes answer emails on your laptop while seated in front of your TV. If you have designated a certain area of your house for business use alone, you may be able to justify your claim for a home office deduction. Be truthful when reporting costs and measures.