Tax Audits: Are You Flying Below the Radar?
Accurate, timely tax returns that are free of certain red flags can prevent IRS tax audits. The IRS has a computer system that scans every tax return checking for mathematical errors, duplicate information, tax deductions, and other red flags that may signal a tax audit.
Avoiding a Tax Audit
Although only seven percent of taxpayers get audited, taxpayers can take certain precautions to reduce their risk.
Reporting Income
The IRS keeps track of taxpayer income through various types of payment documents from employers and banks including W-2s, 1099-Misc, 1099-Int, and 1099-Div forms. When a taxpayer receives any of these forms, the IRS gets a copy. If a taxpayer files a tax return that doesn’t include the payment information on such forms or includes a lesser amount than what was reported, the IRS is alerted and the risk of a
Tax Deductions
Large or excessive
Large Cash Purchases and Deposits
Certain types of businesses must report large cash transactions, usually $10,000 or more, to the IRS. This includes large cash purchases for houses, vehicles, jewelry, and furnishings, as well as large cash deposits in bank accounts. When reviewing tax returns, the IRS looks for sufficient income that supports the legitimacy of large cash purchases and deposits.
Cash Businesses
Taxpayers who work in cash businesses are at higher risk of