Worried about a potential audit? Find out how tax preparation in Denver can save you from an audit and familiarize yourself with the top audit triggers.
Why Does the IRS Audit People?
Audits are simply a way for the IRS to research and confirm any discrepancies in your tax return. Audits are often performed for individuals who have made an error on their return accidentally. Though audits exist to deter people from abusing the tax system, it has another purpose. With audits, the IRS can minimize the gap between what the government is owed and what it actually receives. This “tax gap” is part of the IRS system and needs to be balanced through the audits. If the IRS believes a taxpayer’s behavior and spending habits to be suspicious, then an audit is certainly in order.
Top Three Audit Triggers
In order to avoid an audit, taxpayers should be aware of common audit triggers. These audit triggers are a sure sign that an IRS audit is on the way, so read below for more info:
You failed to report all of your income
This is a common misstep for those taxpayers who worked multiple jobs in one year. You should receive a W-2 form for every employer that reports your earnings. These forms are sent to the IRS, as well. If you fail to report a W-2 form on your tax return, the IRS may issue an audit.
Additionally, freelance workers who earn over $600 per client will receive a 1099 form, which should also be reported on the return. Failure to copy all income information, whether from a W-2 form, freelance work, lottery winnings, or cash tips, will result in a red flag to the IRS.
You have a home-based business
Some deductions, including those for home-based businesses, have confusing rules and regulations. Since it’s easy to claim the wrong thing for home office deductions, the IRS knows there’s a greater potential for a tax gap in these cases.
The general rule for home-based office deductions is that your claimed area can only be used for business and nothing else. Be sure to review all IRS rules for home-based business tax filing to avoid this common audit trigger.
You claimed a significant amount of itemized deductions
Utilized correctly, itemized deductions are a good way for you to claim additional funds on your taxes. However, a misuse of this feature triggers an IRS audit to appraise your deductions. Typically people live within their means, so if your deductions equal to over what you make per year, the IRS grows a little suspicious. To avoid an IRS audit because of misclaimed deductions, be sure to keep receipts and submit the correct forms with your return.
Prevent Audits with Tax Preparation in Denver
Tax filing is a complex task. It involves a lot of preparation, organization, and time. Although you may not have time in your busy schedule to handle your tax filing correctly, it’s important to explore options of tax preparedness. Luckily, a tax accountant in Denver can help. Denver Tax Advisor’s accountants are skilled professionals with knowledge of Federal and State tax filing systems. To prevent tax audits, whether for personal or business tax filings, contact us to help you through the process.