Because of the mix up with tax return related health care issues, you may not be audited by the IRS if you filed an inaccurate return. But beware, the IRS is still looking for other mistakes you may have made and request an audit.
Below are 8 reasons you may get audited by the IRS:
Your income is incorrect
Make sure the income you report from your 1099 and W-2 match up. Kevin Thompson, CPA says “this is by far the easiest to prevent and the most oft overlooked. When I review returns, one of the first things I do is add up the 1099’s and W-2’s and ensure we have accounted for all the income.”
Charitable deductions are too high
If your donations are not on par with your income level you are raising a red flag. Thompson says “American’s are very giving with their treasures to charity. Sometimes, in the process of looking to lessen our tax burden, we look to our charitable giving as one possible solution. Most of our clients maintain great records with their charitable giving. All should be careful when venturing down the path of charitable deductions.”
Your salary is low
If you have an S corporation, and your salary is low for a principal owner, the IRS will become suspicious. “The concept of Reasonable Compensation is vague and ambiguous” says Thompson. “I think and practice that if your W-2 represents what you would pay someone to do your job, then it is reasonable.” The IRS has identified S Corporations as one of the causes of the “Tax Gap.” Thompson says “I look for Congress to alter the tax treatment of S Corporation profits and make them subject to Social Security and Medicare like all other forms of compensation. That will eliminate this issue entirely.”
Wrong Social Security Number
If your Social Security number is hard to read or you made a typo when typing in the number your return may be rejected. “We are working with a client that had a $40,000 refund from 2013 held up because the W-2 contained a typographical error” says Thompson. “I was surprised that the previous preparer either did not have it corrected or prepare and file a paper return and attach the W-2 with a letter of explanation. I think the taxpayer would have received his refund last year instead of having to pay us to clean up the affair this year.” Thompson went on to say “in a digital society, precision with numbers, especially identification numbers, will be of utmost importance. And, when you introduce the incidence of fraud and identity theft, if there are any questions, the IRS will simply freeze everything.”
Certain activities with high losses such as horse racing will raise eyebrows. Thompson chuckled and said “this is nothing new yet taxpayers continue to want to deduct these expenses. I have to admit, if there is truly a business sense and motive, I think they should take the deduction.”
If you claim a different amount for your alimony deduction or alimony income than your ex-spouse does for the corresponding item the IRS will notice. Also, make sure to report the Social Security number of your ex-spouse when reporting your alimony deduction.
Meals and Entertainment
If the type of your business and your meals and entertainment expenses are not in sync, it will trigger the IRS to look further. The IRS continues to beat up this deduction like a tropical storm beats the shore and would like to see this eliminated as a business expense. Entertaining it is an important part of business and an important part of our economy. Record-keeping remains the number one issue with this deduction during an examination. Document with WHOM you had dinner, WHY the meeting took place and WHAT business matters were discussed. Thompson says “in my examination experience, with good documentation, agents back off quickly. But like sharks in blood-infested waters, if they sense a weakness, they go in for the kill.”
Contact Kevin Thompson CPA
firstname.lastname@example.org or call him @ (310) 450-4625 x102.