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It’s everyone’s favorite time of year: tax season. The birds are chirping. The bees are singing. Taxpayers are eagerly flocking to accountants’ offices to formally declare last year’s income, deductions and exemptions.
And they’re hoping they’ve documented it accurately so they can continue on their merry way. After all, no one wants an audit. However, there are some tax moves that can definitely put you among the unlucky few. Jean Bott, CPA, Founder tax hiveBreaking down the three most common steps sure to trigger additional scrutiny — and tips for avoiding them.
income mismatch
The IRS has its own matching system that compares the information you report on your tax return to W-2s, 1099s and brokerage statements issued by the payer. As the bot explained, every dollar you earn is already reported to the IRS in some way. So the IRS can very easily catch that the income you reported and the income reported by the payer do not match.
To avoid audits, Bott recommends creating an income checklist before filing your taxes so that each W-2, 1099, 1098, etc., is declared and accounted for.
A word of caution: Not receiving the form from the payer does not mean your earnings were not sent to the IRS.
disproportionate cuts
Another move that sends up red flags is definitely claiming more deductions than expected in your specified area. For example, if you own a remote IT business but claim thousands of dollars in hotel and airfare expenses, the IRS may want proof that these were business expenses.
The bot encouraged individuals to claim all deductions they are legitimately entitled to (maybe you’re actually traveling to meet with clients), but keep solid receipts in case it prompted further investigation. This becomes even more important if your business has been incurring losses year after year.
rounding off too many shapes
“The IRS knows that you’re unlikely to have (exactly) 1,000 business miles or that many expense categories ending in $100,” the bot said. Too many absolute numbers may trigger an audit.
To avoid this fate, include amounts accurate to the penny. The numbers should appear documented, not estimated.