What triggers an IRS audit?
If you decide to file your own tax returns, what triggers an IRS audit? We’ve covered a couple videos recently about red flags and what to be aware of so you won’t be audited. We will link that video in the description of this video. I’m going to go over a couple more red flags today.
Filing a Schedule C
can be a red flag for the IRS. The reality is tax returns that have Schedule C compared to tax returns that don’t, get audited more often. So depending on how your business is, you should consider changing that so that it is a separate tax filing. Now, I know people like to do tax returns themselves. I recommend asking a tax professional for advice on structuring your business, because at a minimum, you’ve reduced your chance of being audited. In addition to reducing your chance of being audited there’s also a possibility you’re going to save a lot more in taxes just by having a different entity structure.
Math errors are the next red flag.
Surprisingly, this still happens a lot. Now, if you’re using tax software this shouldn’t happen, but sometimes it does. If you’re not using tax software and you’re filling out the forms by hand, honestly, I’ve never seen someone do that without getting a math error letter back from the IRS. You really just don’t want to be on the radar of the IRS. So if you are going to do your tax filings I at least recommend using a software that’s created for it.
Sometimes I’ll ask a client, “Hey, I need your business profit and loss statement, so I need all your income and expenses.” They’ll come back and give me their profit and loss statement and all their expenses end in zero. Look, I know that they know that they made up those numbers, and if me and the client know that, the IRS knows that too. Using round numbers is not a great idea.
is almost a guaranteed way for the IRS to audit you. Filing a Schedule C, math errors, using round numbers, not filing a complete tax return, and something’s missing are all picked up by the IRS computer. They will be noticed!
A human doesn’t even have to look at that for them to generate notices. If you use tax software, the chances of you filing an incomplete return go down compared to filling out the forms by hand. But at the same time, that’s not always a guarantee.
Using a tax professional will help you so that there might be some forms that need to be filed out along with whatever else you have going on in your situation. We are in the business as tax professionals, so I’m biased, but I think it’s always a good idea to get some tax professional advice, even if you want to file your return by yourself.
And remember, the IRS doesn’t care if you’re not a tax professional. They will come after you if you make a mistake.
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