The letter from the IRS that you dreaded appeared in your mailbox
You opened your mailbox and you see a letter. The return address indicates it’s from the IRS. As you nervously open the letter, your anxiety increases when you realize that the IRS wants to audit you. You immediately begin to wonder where all the receipts and paperwork are that you used to do your taxes.
Once the anxiety calms down to a reasonable level, you may wonder why the IRS decided that you needed an audit. Many Americans, including many here in Nevada, randomly appear on the IRS’s radar. Other people receive a notice of an audit because the IRS suspects suspicious activity.
If you weren’t chosen at random and told the truth on your taxes, the IRS may have chosen you for one of the following reasons:
- Failure to report all income: Maybe you went to a casino and won some money. If you failed to report this or other income on your taxes, you could receive that dreaded letter.
- Math wasn’t your best subject: Mathematical errors may send up a red flag. Even if the errors were innocent, you could end up having to pay more taxes.
- Don’t forget what you learned about rounding in math: When rounding numbers, be careful. For example, $495.25 gets rounded to $495, not $500.
- Your Schedule C claims too many losses: If you’re self-employed and filed a Schedule C with a lot of losses on it, the IRS may wonder why.
- The home office deduction: The rule for this deduction requires exclusive and regular use of a part of your home for business. Occasional use does not qualify.
- Business expenses: The only eligible expenses must relate to your business. For instance, a lawyer couldn’t deduct artist supplies for his painting hobby.
- Excessive charitable donations: If your income doesn’t appear high enough to substantiate high donations to charity, the IRS may have some questions for you.
Other circumstances could bring the IRS to your door, but the above include the most commonly seen reasons for an audit.
What do I do now?
First, don’t freak out. As long as you filed your taxes in good faith and told the truth to the best of your ability, you may come out of the audit only owing some additional money, if any. Fortunately, the IRS can’t stop you from enlisting the assistance of an attorney in your audit. An attorney can help you identify any problems with your taxes and represent you with the IRS.