- Registering your wrong taxes can lead to a control of IRS, fines and other complications.
- A tax lawyer shared 4 of the most common IRS audit triggers he was seen in.
- Keeping wide registers can move far ahead in preventing tax mistakes, he said.
Taxes are already complicated, and their submission can mistakenly make things even worse, as mistakes can result in a letter from IRS and possible fines.
Some areas in your tax registrations are more prone to mistakes than others, according to Stephen Weisberg, the main lawyer and founder of the tax group W.
IRS will often automatically correct mistakes and small typos, and an IRS audit is not a very common occurrence. However, bright mistakes will raise their eyebrows and result in an audit.
Fortunately, a few additional precautions can go far ahead in preventing an IRS letter. Below, Weisberg shared the 4 best mistakes that can cause an IRS audit and how to avoid them.
Lost income
One of the most common reasons for an IRS audit is also one of the most direct – forgetting to report income.
IRS receives copies of all your income documents, so it can prove with your documentation when submitting taxes.
Weisberg sees that this issue often comes up with 1099 forms, which often do not come from your direct employer: “When it comes to 1099, money made for stock or interest can be easily forgotten,” Weisberg said.
If your reported income does not match what the IRS has in the folder, it can cause an automatic audit, Weisberg added.
Easy is easy to avoid this error by keeping your data tracks. If you have a lot of income flow, check double that you have received a tax form for each. Waiting until you have all your shapes before submitting your taxes can also be a good idea. The deadline for employers and other income payers to send you your income forms is usually January 31st. And if you don’t get a W-2 or 1099 you are waiting, follow your employer.
Exaggeration of business expenses and reporting income
Being a small business owner also comes with increasing tax compilations. Business owners, including solopreneurs, report their business profits and losses in Appendix C in Form 1040.
“If you have huge business expenses or losses in your business, IRS begins to think you can get personal expenses as losses in your business, or you can exaggerate the discounts you are getting,” Weisberg said.
It is not uncommon for small businesses to lose losses, but if your business is posting many years of losses, IRS may begin to question its legitimacy.
Businesses that have a high volume of cash transactions are also at an increased risk to be audited, as the IRS may seek to investigate reported income. Examples include barber shops, restaurants and beauty salons. In that case, it is a good idea to verify your income and transactions regularly.
Discounts of the interior office
Small business owners may be able to require home office tax deductions if they work from home. However, this discount can come with complications.
“Especially with today’s distance work situation, the deduction of the Interior Office also creates many issues for auditing purposes,” Weisberg said.
You can only ask for your home office as a tax discount if used for self-employment business-not if you have used it for your W-2 work.
“It has to be used exclusively for the business, and so you have to meet certain instructions, and you have to keep a proper record. Any discrepancies in this matter can cause an audit, and the IRS looks too much home office,” Weisberg Bi told.
There are two ways to calculate the deduction of the interior office. The simplified method determines that you can spend $ 5 per square foot of your home office for a maximum of $ 1,500. If you follow this method, there is no need to track individual expenses.
The direct method involves subtracting a percentage of home expenses such as rent, mortgage, internet and other services, calculated by separating the square footage of your home office from the total space of the home. This method may result in a larger tax discount, but requires detailed registration, so Weisberg recommends extra care if you decide to use it.
Car expenses
Small business owners can also require tax expense tax discounts. But if you also use the vehicle for personal purposes, mixing both can lead to IRS control, Weisberg warned.
You can calculate your expenses based on the total mile -driven, or individually subtract certain business expenses. If your car is for personal and business use, you can add costs related to your car and multiply by the percentage of miles run for business.
Weisberg has seen people have problems with IRS to overestimate how much they are traveling for business purposes.
“If it doesn’t seem reasonable for how much your business is doing or what kind of business you have, the IRS will see it,” Weisberg said.
If you claim this discount, be sure to keep a detailed register whenever you use your vehicle for business purposes, including mileage, date and starting and end addresses.