Yes you read that right. The IRS plans to go forward with hiring Equifax to verify and validate taxpayer identities in the wake of their massive systems breach. If you missed the news (because apparently the IRS did), hackers were able to obtain confidential financial information—including social security numbers—of 145 million users; which now equates to the largest US data breach in history.
Outraged by the IRS’s decision to hire Equifax, some members of Congress spoke out including Senate Finance Chairman Orrin Hatch (R-Utah). He recently told Politico:
“In the wake of one of the most massive data breaches in a decade, it’s irresponsible for the IRS to turn over millions in taxpayer dollars to a company that has yet to offer a succinct answer on how at least 145 million Americans had personally identifiable information exposed.”
The IRS continues to defends it’s choice, stating that the service Equifax was hired for will not put U.S. taxpayers personal information at risk. They will, however, keep a watchful eye on their new hire.
If you have been affect and/or would like to find out if your were affected by Equifax’s breach you can do so by clicking here. However, we advise caution before using services to ascertain Equifax exposure. According to the terms and conditions, users that access Equifax’s systems to determine if their information was compromised are voluntarily giving up their rights to sue and/or join class action lawsuits against Equifax.
If you would like more information about this breach or would like to to speak to an R&G Brenner professional, contact us toll free at (888) APRIL-15 or via web by clicking here.
As the the clock approaches midnight on the 2015 tax season, many taxpayers still haven’t filed their tax return yet. While procrastination is common for many when it come to filing taxes, this year we are seeing a higher number of last minute filers. The winter was brutal on the east coast; extreme cold & snow produced more tax hibernators than in years past. Wage documents like W2s & 1099s were issued extremely late (And when they were finally issued, many were issued incorrectly), and the uncertainty around reporting health insurance on tax returns for the first time has produced even more confusion. But have no fear! There is still time to tackle your individual tax situation. And even if you already filed, below is a definitive list of last minute tax tips everyone should be aware of:
The April 15th Deadline? Only If You Owe!
Many taxpayers know the deadline is April 15th, but the majority of taxpayers do not know that the deadline only applies to those that owe money to taxing authorities. If you are expecting a refund, you have an additional 3 years to file or amend a filed 2014 tax return. No extension is necessary to file if you are expecting a refund. Again, extensions must be filed by the deadline only for those that owe taxes, but are not ready to file their final tax return. However, an extension is only an extension to file a final tax return, NOT to pay your taxes. If you are filing an extension, you must send your tax payment along with it. If you do not know your final tax liability, overestimate. Any overpayment will be refunded to you or applied to future tax liabilities. Any underestimated taxes are subject to penalties & interest that are not paid by the deadline.
Lower Your Tax Bill Even More
Even with the deadline approaching, you can still reduce your tax liability by making contributions to the following:
Contribute to you IRA
Contribute to your 401(k)
Contribute to your Health Savings Account (HSA)
Contributing to any of these accounts (or opening a new account) before filing your tax return will reduce the taxes you owe. However, each contribution has limits, so consult your tax professional or financial advisor to find out what those limits are. These contributions must be made before you file your final tax return (filing an tax extension also allows you to contribute later as well).
Last Call For 2011 Tax Returns
As stated above, taxpayers have 3 years to file or amend tax returns if they are due refunds. This year’s April 15th deadline will be the final day taxpayers can file or amend a 2011 tax return. The IRS has over $1 Billion in unclaimed refunds for those that have not filed a 2011 tax return. According to IRS Commissioner John Koskinen. “People could be missing out on a substantial refund, especially students or part-time workers. Some people may not have filed because they didn’t make much money, but they may still be entitled to a refund.” Most of these taxpayers fall into the category where they did not break the threshold in dollars earned requiring them to file a tax return. However, taxes were withheld from their paychecks, and that money should be refunded. Any 2011 refund not claimed become the properly of the U.S. Government. Half of the uncollected refunds for 2011 tax returns exceed $698! This is your money. Don’t let the Government keep it!
Health Insurance Subsidies
The Affordable Care Act (ACA) has drastically reduced the number of insured since going into effect in 2014. Subsidies to off-set the cost of insurance is a major reason why. However, many taxpayers this year were shocked to see that their refunds were significantly reduced from years past. This is because ACA subsidies are calculated using an estimate of a taxpayer’s yearly income. If you get a promotion mid-year, a newer higher paying job or simply just underestimate you annual income, you may no longer qualify for the subsidy you’ve already received…and “they” want it back. Therefore, if you’ve received a subsidy this year for health insurance acquired on the exchanges, it is important to report any significant differences in estimated income to your health insurance provider and/or broker. While you may have to pay a higher monthly premium, you won’t have any surprises come tax time.
Where’s My Refund?
So you filed your return. Now “Where’s my Refund”?. This is a question that’s hard to answer specifically. In general, the earlier you file, the better chance you have of getting your refund in the IRS’ allotted time: approximately 2-3 weeks if you’ve electronically filed (even faster if you opted for a direct deposit) and 6-8 weeks if you filed a paper tax return. However, many factors can delay your refund. First and foremost, before you start trying to track down your refund, be sure that your return was filed and accepted by the IRS. Click here to check the status for your return on line. If you filed your return late (between late March & the April 15th deadline) expect to tack on about a week or so. The IRS’ budget has been slashed and they are grossly understaffed. If you need to speak to an IRS agent, good luck. The IRS is only able to answer about 60% of the calls made to the agency. The rest either get tired of waiting for hours or get a “Courtesy Disconnect” (i.e. being hung up on). The key is not to give up. If you keep pestering the IRS, eventually you will make progress. Remember, many states (including NY) have been issuing “pre-refund letters” for the last 4-5 years. Sometimes they ask for something as simple as a copy of your W-2; information they are supposed to have already! These letters are simply designed to delay your refund, they are not “Audits”. If you get one of these “pre-refund letters”, address them immediately. The sooner you send them the information they are requesting (no matter how trivial or ridiculous) the sooner you can get your refund “they” are collecting interest on (and they keep that interest) .
So, you worked hours on your tax return, gathered your documents, filed on time and you are now awaiting your tax refund with eager anticipation. All is well until that moment of mild terror when you realize you forgot to include a vital document or deduction on your taxes. Don’t panic: all is not lost. There are ways to include missed information on your taxes, even if you’ve already filed them.
File an Amended Tax Return
When you’ve omitted information on your return, the IRS allows you to file an Amended U.S. Individual Income Tax Return called Form 1040X. However, you can’t e-file amended returns; they’ll have to be submitted it in paper form which increases the wait time by many weeks for any potential additional refunds.
Reasons to File
There are lots of reasons you might need to file an amended tax return, but there are some things that don’t necessitate one. You’ll need to file a 1040X form if you have experienced a change in your filing status, income, credits or deductions. But you do not have to file if you caught a math error after the fact. The IRS is pretty good about catching these types of mistakes and usually adjust these automatically for you. For example, If you forgot to attach the proper tax forms and a W2 is missing, there’s no need to file this amended form. You should get a request from the IRS requesting any missing items. The IRS can easily find income that you may have omitted from your tax return, but sometimes it can take a very long time for the IRS to notify you. That means if you made an error where you underpaid your taxes in some manner, you will accrue penalties and interest until your tax liability is paid in full. It could pay for you to file an amended return to minimize penalties & interests. On the other hand, the IRS isn’t as well-equipped for finding missing credits or deductions that you may have overlooked, and which could increase your refund. In this case, don’t wait until you get a letter from the IRS looking for more information. Instead, be proactive and file the amended return. After all it’s your money and the IRS does NOT have to pay you interest for holding onto your well deserved refunds.
You have three years from the original filing date to submit Form 1040X, or two years from the date of tax payment. You’ll need to submit a separate 1040X form for each tax return you’re amending and mail them separately to the IRS. Also, don’t assume they are all being mailed to the same mailing address. There are usually separate processing PO Boxes for each tax year you are amending. If you plan on claiming more of a refund, you must wait until you get your original refund in the mail or via direct deposit before filing the 1040X. Again, keep in mind that amended refunds take awhile to process, so it could take up to 12 weeks before you receive anything. If you owe more taxes as a result of the amended return, pay what you owe right away to avoid fees and penalties from piling up, as the IRS will begin charging you based on the due date of your original tax return.
Track Your Status
Similar to tracking your original refund status, the IRS has a Where’s My Amended Return? tool (you can also check R&G Brenner’s Where’s My Refund page as we include State Refund links as well) that you can use to track your amended return’s status. Alternatively, you can call the IRS at 866-464-2050. Have your taxpayer identification number or social security number handy, along with your date of birth and zip code.
If you forgot to include some vital information on your tax return, follow the steps above to make sure you pay all the right taxes and get your full refund. Or, simply contact an experience R&G Brenner tax professional today, and we’d be happy to assist you.
With the clock about to strike midnight on the 2013 Tax Year Filing season, the following is a quick list of tax tips for all you last minute filers out there:
April 15th Deadline
Yes, we all know the saying “Death & Taxes…”. And nothing drums up the cold sweats and association with taxes like the April 15th deadline. However, here is something that many taxpayers do not know: This deadline is only if you OWE taxes to the IRS. If you are due a refund from the IRS, you actually have 3 full years from the April 15th deadline to claim and receive your refund before it becomes the property of the U.S. Government. So, as long as you file your 2013 tax return by April 15th, 2017 you will get your refund. There are of course, many reasons to file your 2013 tax return before the deadline. It’s your money! So don’t let the government hold on to it especially when they do not have to pay interest on it. If you owe, and you do not have all of your tax documents ready, you can always file an extension. Extensions must also be filed before the April 15th deadline. REMEMBER: An extension is only an extension to file your final tax return, NOT to pay the taxes you owe. Therefore, expect to send payment for the estimated amount of taxes you owe along with any extension.
Beware of IRS Scams
IRS & Tax related Scams have been steadily increasing over the last few years. The most common scam going around is IRS impersonators contacting unsuspecting taxpayers and getting them to divulge their confidential personal information which can be used to open up credit cards in the victims name and/or to a file a fraudulent tax return in their name in order to steal refunds. NOTE: The IRS will NEVER initiate contact with your via email, phone, fax or text. They will always send you a written notification with instructions. Even if you receive written communication, double check that the contact information on the letter matches the IRS contact information from the IRS website. If you think that you are the target of a tax related scam, report it to email@example.com.
Sign Your Return & Mail To Correct Address
While this may sound trivial, many taxpayers forget to sign their tax returns! Your tax return is technically not considered filed if it is not signed. While the majority of tax returns are filed electronically, there are still many reasons why a return would be filed as paper. Furthermore, if you had your return prepared by a professional, be sure that they signed the return as well. While the taxpayer is ultimately responsible for what is listed on their return, a common scam that many “professionals” use to avoid any liability is to file a tax return as “self-prepared”. In other words, the IRS thinks that the taxpayer prepared and filed the tax return themselves when in reality it was filed by a paid income tax preparer. So be sure to check for all appropriate signatures! Furthermore, be sure you are mailing your tax return to the right IRS processing center. The IRS tends to change their mailing addresses annually and some have separate mailing addresses for refunds and taxes due. Here is a list of all the IRS tax processing centers.
Keep Your Tax Records
So you just sent in your taxes and now you can throw all of your W2s, 1099s, receipts & other tax related documentation into the fireplace, right? WRONG! Depending on your situation, the IRS says to keep all of your tax records between 3 & 6 years. So, just to be on the safe side, keep all of your tax records for at least 6 years. Sometimes it could take years before the IRS notifies you with an issue and/or adjustment on your tax return. If you plan on contesting changes in the IRS’ favor, you’ll need your backup documentation. Recent budget cuts to the IRS will probably delay the notification process even more.
File With A Tax Professional
While millions of taxpayers are electing to forego using a tax professional in favor of filing themselves, the numbers don’t add up. A couple of years ago R&G Brenner investigated The True Cost Of Preparing Your Own Tax Return and found that taxpayers who filed themselves were losing an average of $594 in refunds as opposed to using a Tax Professional. Similarly, H&R Block is running ads this year that found 1 in 5 taxpayers who prepares their own taxes are not claiming all the deductions they are entitled to and are losing $490 in refunds. Now there are many taxpayers who have very simple returns (standard deductions, no house, no kids, etc) and can easily file themselves. However, the moment your tax return gets even a little bit complicated, you should seek professional help. If you are going to Itemize Deductions (Schedule A), claim mortgage interest, have children (Earned Income Tax Credit), deduct business expenses (Schedule C), have rental income (Schedule E), or other complex tax positions, it is almost never a good idea to prepare your own tax return.
If you would like information about R&G Brenner, our services or if you need any tax assistance before or after the April 15th deadline, please feel free to contact us here, or call us toll free at (888) APRIL-15.
9 million individuals have signed up for health insurance as mandated by the Patient Protection and Affordable Care Act of 2010 (PPACA). Also referred to as the ACA or Obamacare, the law requires all Americans to purchase or be covered under a plan of insurance for healthcare by March 31, 2014. Failure to obtain coverage by this date results in a penalty that will be assessed on your 2014 tax return.
Problems with the operation of the website used for enrollments resulted in an expansion of the hardship exemption to individuals whose health insurance plans were cancelled. The exemption allows certain individuals to bypass the requirement for insurance coverage under extraordinary circumstances or hardship. It is important to understand both the individual mandate and hardship exemption and how it may affect your requirement to purchase health insurance under the ACA.
About the Individual Mandate
The individual mandate was created as a penalty to induce those individuals who otherwise qualified for health insurance to become enrolled in a plan of coverage. If a person is not otherwise exempt from the requirement to purchase health insurance they are subject to a non-compliance penalty beginning this year. The amount of the penalty is the greater of $95 or 1% of your taxable income in 2013. For example, if your taxable income in 2013 was $40,000, the penalty amount you would be assessed for not having health insurance would be $400. However, this penalty can grow to over $2000 per family by 2016.
Basic Exemptions from Affordable Care Act Requirements
The individual mandate to purchase health insurance applies to nearly all Americans. Those not required to enroll in an individual plan of coverage before the deadline under the ACA include the following:
those who are currently insured;
individuals covered by either Medicare, Medicaid or state sponsored health insurance plan;
veteran health or TRICARE plan participants;
individuals who are permitted to claim a religious exemption;
persons who are undocumented and living in the United States;
individuals who are incarcerated;
Native American tribe members; and
those with individual income of $10,000 or household income of $20,000 in 2013 or where health insurance premiums represent 8% or more of their income.
Hardship Exemptions for the Individual Mandate
The hardship exemption, as explained in the ACA, is provided for those individuals who may not meet the requirements of the basic exemptions enumerated in the law. There are 14 different categories available for individuals looking to claim a hardship exemption from the individual mandate penalty imposed under the law.
These categories include: (1) homelessness; (2) notice of eviction or foreclosure within the six month period prior to January 1, 2014; (3) utility shut-off notice; (4) victim of domestic violence; (5) death of a close family member; (6) property damage due to a natural or human caused disaster; (7) a bankruptcy filing; (8) accrued medical expenses for at least 2 years; (9) an increase in expense related to the care of a family member who is ill, disabled or aging; (10) claiming a dependent child denied CHIP or Medicaid and subject of a court order for someone else to pay medical support for the child; (11) eligibility appeals decision for coverage; (12) reside in a state that did not expand Medicaid eligibility under ACA; (13) cancelled insurance coverage; and, (14) other hardship.
Qualifying for a hardship requires the filing of an application and the provision of certain supporting documents as required for the numbered hardship exemption. Once approved, a hardship exemption certificate number will be issued that must be placed on your tax return in order to waive the individual mandate penalty.
For more information relating to the health care exchanges, please contact R&G Brenner’s insurance division at firstname.lastname@example.org.
IRS audits are feared for good reason: at best, they’re disruptive, and at worst they can cost you vast amounts of money. Though the percentage of audited returns is relatively low, every year the IRS still audits a huge number of returns. Following these tips can help you reduce the chances you’ll end up as one of their targets.
Be Diligent With Business Deductions
This primarily pertains to the self-employed and business owners. While it may be tempting to write off your apartment as a home office or your car as a business investment, the IRS has careful formulas for determining whether or not particular expenses are deductible. For instance, only the part of your home used exclusively counts towards the home-office deduction—meaning writing off too much square footage could get you noticed. Car expenses, likewise, must be carefully calculated. If you’re thinking of writing something off, you should do some research or contact a tax professional.
No, not “everything” as in money. “Everything” here means documentation, like receipts, pay stubs, leasing agreements—really, anything that might be slightly relevant during tax time. Tax returns gets much more difficult to complete when you’re missing documents–and complications could lead to you miscalculating a deduction or forgetting to declare an income source. And, in the unfortunate event of an audit, you will need all of your documentation to verify your deductions.
Choose Your Professional Wisely
Many people, especially those with complicated tax situations, hire tax professionals to help take the headache out of tax season. But according to MSN Money, choosing the wrong tax “pro” can be disastrous. So, when picking a tax preparer, check out their track record, customer reviews, how long they’ve been in business, their Better Business Bureau standing—just do your homework, as you would when hiring any other type of professional. R&G Brenner currently has an A+ Rating with the BBB
Pay Quarterly Taxes (If Necessary)
If you’re self-employed, the IRS expects you to keep up with your tax obligations throughout the year. This means not only filing an annual return, but also paying quarterly taxes if a certain proportion of your income comes from self-employment. It’s especially vital for the self-employed to keep up with their taxes because they have no employer withholding income taxes or chipping in on Medicare and Social Security taxes. Some tools you can use to keep up with your quarterly taxes are Form 1040-ES, which can help you determine if you need to pay quarterly taxes, and the Electronic Federal Tax Payment System, which you can then use to pay quarterly taxes.
Depending on the system you use, electronic filing (e-filing) can have several advantages: less paperwork cluttering your desk, easy deduction-tracking systems, built-in calculators, and so on. But perhaps the biggest advantage is that, according to the IRS, e-filed returns have an error rate of only 1%, compared to 20% for paper returns. And if there is an error, e-filed returns can report back to the sender much more quickly, hopefully allowing them to correct the problem. Furthermore, the IRS & states like NY require all tax returns to be e-filed unless you have a legitimate excuse for not filing electronically. If they don’t like your excuse, they can fine you.
Each year, the Internal Revenue Service (IRS) puts out a list of common tax scams—dubbed the “Dirty Dozen”—to warn taxpayers. Ranging from identity theft to return preparer fraud, the list is intended to remind tax payers to use caution preparing, filing and discussing their annual taxes. Personal and other sensitive information can get into the wrong hands if the proper precautions aren’t taken. It’s wise to periodically review the IRS’ Dirty Dozen to keep apprised of scams.
It’s more common than you may think, and it’s on the rise. About 8.6 million households in 2010 were the victims of identity theft, according to the Bureau of Justice Statistics, up from 6.4 million households in 2005. Identity theft involves the unauthorized use of credit cards and checking accounts, as well as the misuse of personal information to open new accounts and loans or commit related crimes. The IRS lists tax fraud as a result of identity theft as a top concern in 2013. This can result when someone uses your personal info, such as social security number and name without obtaining your permission, and uses it to file a fraudulent tax return, thus getting a refund illegally. The IRS attempts to combat this type of identity theft through a comprehensive strategy involving three components: prevention of fraud, early detection and assistance for victims, preventing $20 billion in fraudulent refunds from being issued in 2012.
False 1099 Refunds
The IRS lists False Form 1099 refund claims as another of its top scams. Many people believe that the federal government manages top-secret accounts for citizens of the United States and that taxpayers can tap into those accounts through filing a 1099-OID (Original Issue Discount). This is an illegal scam, and can net perpetrators penalties and jail time.
This scam takes the form of unsolicited email or a fake website claiming to be legitimate but that lures unsuspecting people in and encourages them to give up personal information about their finances. The thieves can then turn around and commit identity theft. One common way this occurs is through emails claiming to come from the IRS. The IRS NEVER contacts taxpayers via email to obtain personal info. Recipients of such emails should be aware it’s a scam and forward the email to email@example.com to protect themselves and alert the authorities.
Offshore Income Fraud
Hiding income in offshore accounts remains one of the top scams reported by the IRS. Many individuals attempt to evade paying U.S. taxes by keeping their money in offshore banks, using wire transfers as well as debit and credit to get at the funds. Of course, there are legitimate needs for many people to have offshore accounts; however, taxpayers in these situations must comply with certain reporting and disclosure laws in order to operate within the law and avoid penalties, fines and jail time.
Return Preparer Scams
According to the IRS, approximately 60 percent of taxpayers will consult with tax professionals and companies in 2013 to assist in preparing their returns. Although most of these professionals are honest, many are not. This often can result in refund fraud or identity theft, so the IRS cautions taxpayers to be especially diligent in researching the firm they hire to do their taxes. Keep in mind that your tax return is your legal responsibility no matter who prepared it. Taxpayers should check that their tax pro enters his IRS Preparer Tax Identification Number (PTIN) and signs the return. A common scam is for a tax preparer to file a tax return they prepare for a taxpayer as “Self-Prepared”. This is illegal and any paid tax preparer who attempts this should not be used, and be reported to the IRS asap.
If you have encountered any other scams in regards to your tax return, please let us know in the comments section below.
In a landmark ruling announced by the Obama administration, married same-sex couples shall be treated as any other legally married couple–at least in the eyes the Internal Revenue Service for tax purposes. This announcement follows and is consistent with the recent Supreme Court ruling which struck down the constitutionality of The Defense of Marriage Act (DOMA) which only recognized “marriage” between that of a man and a woman.
Importantly, this ruling is limited to couples who have been legally wed in the 13 states that allow same-sex marriages; California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. These guidelines do not apply to those classified as being in Civil Unions or Domestic Partnerships. However, all married same-sex couples will be able to file joint tax returns, even if they currently reside in states that do not recognize same-sex marriages.For example, if a couple was married in New Hampshire in 2010, and recently moved to North Carolina, they will still be recognized as a married couple for Federal Tax purposes (but may still be required to file separately for state tax purposes).
This ruling offers immediate tax benefits for same-sex couples:
The biggest financial bonanza for some couples will be the tax exclusion for employer-paid health insurance, which many same-sex spouses previously bought on an after-tax basis. That could be worth more than $1,000 per couple.
“This is uniformly good for everybody,” said Todd Solomon, a lawyer who specializes in pension plans and benefits. “Their health benefits just went from taxable to non-taxable.”
Chad Griffin, president of the Human Rights Campaign, the nation’s largest gay-rights group, said same-sex families “finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”
In conjunction with these health related savings, all same sex married couples may–but are NOT required to–file amended tax returns going back to tax year 2010. This could allow for additional refunds and/or for the off-set of tax liabilities that were previously unavailable to them. These guidelines apply to all Federal tax forms including Gift & Estate taxes, and will affect personal and dependent exemptions and deductions, employee benefits, IRA contributions and tax credits.
The IRS currently has $917 Million for clients in unclaimed refunds for taxpayers just like you, that have not filed a 2009 tax return. If these returns are not filed by the April, 15th deadline, your money then becomes the property of the U.S. treasury. The most common reason for not filing a tax return is that many workers believe they did not make enough money to have to file a return. This very well may be true however, if you worked, you most likely had taxes taken out of your paycheck. This could equate to hundreds or even thousands of dollars that the IRS will be putting into their pockets instead of yours.
If you did not file a 2009 tax return and you worked that year, you may be due a refund. Please contact an R&G Brenner professional today, and we will help you determine if filing a tax return can get you back the cash you deserve.
Nothing brings on the cold sweats like an official letter from the Government; particularly the IRS. Like being pulled over by the police while driving, thoughts of everything you have ever done (or may have done) wrong begin to flood your mind. There are two different classes of IRS Audits: Correspondence Audits & Desk Audits.
A Correspondence Audit is by far the most common type of audit the IRS issues to Taxpayers. These are generally the lowest level of an audit and usually involve small amounts of money. Verification of income & expenses are done almost completely by Mail or Fax and you may never even speak to your auditor. Conversely, A Desk Audit–or Office Audit–is when the IRS directs a taxpayer to an IRS office for an in-person interview. These generally involve larger amounts of money.
Regardless of what type of Audit a taxpayer receives, thoughts of asset seizures and/or jail time are common worries. However, being locked up or having your bank account seized are very rare. Usually, the punishment is simply the difference in tax calculated in the IRS’ favor, accompanied by a late payment penalty and interest. If a taxpayer can’t pay the penalties and taxes immediately, the IRS will usually accept a payment plan; as long as payments are made there is no need to worry that bank accounts will be raided or assets liquidated. Nevertheless, the stress and burden of the taxpayer to produce the documentation if very real. If fact, the Taxpayer Advocate wrote that Correspondence audits are not necessarily less work for the taxpayer. While there is no sure fire way to eliminate your chances to being audited (the IRS & States issue many random audits a year), there are many Red Flags a taxpayer can avoid to reduce their chances of being audited:
1. Not Reporting All Of Your Income: The IRS cross checks your income sources with 1099s and W-2s. If your income has dropped, that may be a red flag. Do not under report your income, no matter how tempting. If you have some self-employed income, report it and then use every deduction or write off you can find.
2. Claiming Large Charitable Deductions: The IRS calculated what the average donation is for a person in your income bracket. So if indeed you made a large donation last year be sure to have proper documentation. A cancelled check will do if the amount is under $250. Over that amount, you will need a letter from the charity.
3. Earning A Bunch Of Money: Over $100,000. You are 5 times more likely to be audited if you make the big bucks so be sure to document all of your deductions and income.
4. Taking Higher Than The Average Deductions: If the deductions on your return are disproportionately large compared to your income, the IRS audit formulas will go “tilt”. So if you have large medical deductions be sure you can prove them if need be.
5. Home Office Deduction: The IRS is always interested in this deduction, because history has shown that many people who claim a home office should not. If you work out of your bedroom or dining room, the deduction may be invalid.
6. Business Meals, Travel And Entertainment: Schedule C is filled with tax deductions for the self-employed individual. And the IRS has figured out that often some self-employed individuals tend to claim excessive deductions. They then make the assumption that all such individuals may cheat so Schedule C will get a review.
7. Claiming 100% Use Of Your Car For Business: If you are self-employed and use your car for business be honest with how much you actually use the car for business. Keep very good records of the miles you drive. I know it’s a nuisance, but necessary.
8. Cash Businesses: If you have a cash-intensive business like an antique shop, junk shop, car wash, a bar, a hair salon, or a restaurant you are probably on the IRS’ short list! Whenever a lot of cash is involved, the assumption is someone is slipping some under the table!
9. Large Cash Transactions: The IRS requires reports to be filed for cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses.
10. Math Errors: If you do your tax return in long hand, check your math and be sure to sign the return and put in the correct social security numbers. A sloppy return can trigger an audit.