Chances are high that you’ll never have to worry about being audited. The IRS audits less than 1% of all income tax returns submitted each year, with that number expected to trend even lower in the future.
Budgets cuts, an increase in identity theft cases, and last year’s government shutdown have Uncle Sam pretty backed up, so audits aren’t a huge priority – at least for now.
If you’re scanning receipts, tracking your write-offs, and declaring all of your small business revenue, you should have nothing to worry about even if you were audited. However, even if your books are spotless, no one wants to trigger an audit. It’s like volunteering to go to the dentist.
While it’s not possible to completely avoid an audit, you can decrease your chances somewhat by avoiding these IRS “eyebrow raisers.”
You’re more likely to raise an IRS eyebrow or two if you:
Make a ton of money
The more you make, the more Uncle Sam keeps his eagle eye on you. People who make more than $200,000/year are more likely to be audited than those who don’t.
This certainly isn’t a reason to purposely avoid achieving that 6-figure goal you set for yourself. Just know that once you meet that goal, you need to be even more diligent about tracking your income and expenses.
“Forget” to declare your income
Remember that the IRS has access to your income forms. If an employer or contractor submits a W2 or 1099 form for you, and you don’t include that income on your tax return, the IRS immediately gets suspicious. Make sure all current and past employers, clients and contractors have your current mailing address so you get all of your tax forms from the previous year.
Also, keep in mind that you’re ultimately responsible for declaring your income. If a client does not issue you a 1099, it doesn’t mean you don’t need to claim that income! They made have made a mistake, but you still need to let the IRS know how much they paid you.
Go crazy with the donations
If you make $75,000/year but are claiming charitable donations of $2 million, Uncle Sam will become a bit concerned. You can absolutely take advantage of the donation deduction, but make sure it’s at or around what’s reasonable for your income level. The IRS actually has an internal way to measure the average annual donation amount for all tax brackets. Use common sense.
Claim a home office deduction
This is a tricky one. The home office deduction is a completely legitimate write-off for many small business owners. The reason it raises a flag with the IRS is because many people attempt to claim a higher amount than they’re entitled.
In order qualify, you must use an area of your home for business, and only business. This doesn’t mean that sometimes you come home from work early and work on the couch. It also doesn’t mean that your desk doubles as the dining room table.
Also, remember that you’re only allowed to claim things like utilities and square footage for the area of your house that constitutes the office. You can’t write off monthly electric expenses or Internet charges for the house as a whole.
Drive a “business only” vehicle
If you take a deduction because you’re using a vehicle for business, it may be more difficult to avoid an audit. Be sure that the vehicle in question is really only used for business purposes, and that you’ve kept detailed, accurate records of the vehicle purchase, maintenance and mileage.
Remember that while it’s not always possible to avoid an audit, it’s absolutely possible to survive an audit unscathed. Detailed record-keeping throughout the year will be sure to keep the IRS at bay.
No Rendering of Advice – The information contained in here represents the opinion of Shoeboxed, Inc. and is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant or attorney. We advise not to act upon this information without seeking the service of a professional accountant. Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties under U.S. federal tax law.
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