With the tax filing deadline set for July 15, this is when Americans who have ignored their taxes so far should really start moving. But at a time when so many people are experiencing their share of financial stress, the last thing you need is an IRS audit at your fingertips. As such, it is worth avoiding these red flags that could subject your return to further scrutiny.
1. Unreported income
The tax forms you receive that summarize your various types of income are not just sent for your benefit; The IRS also receives a copy of each. That means you must report all of your income, including the $ 72 in interest from the savings account you earned or the $ 800 you received from a client in exchange for a freelance job you did last year.
If the income you report on your tax return doesn’t match what the IRS has on file, you can bet the agency will listen to you after the fact, so don’t take advantage of that opportunity. Instead, review all of your tax documents and be sure to report every dollar you received during 2019.
2. Disproportionate deductions
As a tax filer, you are entitled to claim a large number of valuable deductions that could substantially reduce your tax burden. And overall, there’s nothing wrong with claiming those deductions. It’s when those deductions don’t make sense given your income level that the IRS begins to suspect.
Imagine reporting $ 50,000 in income for 2019, but also claiming $ 15,000 in charitable donations. It could be the case that you are just a generous person, but most people who make $ 50,000 a year cannot afford to part with it for charitable purposes.
Likewise, if you are a business owner, you have every right to deduct the expenses you incur in the course of earning money. But if your reported earnings total $ 60,000 and you claim $ 40,000 in business expenses, the IRS will likely question that figure.
As such, make sure the deductions you claim on your tax return align with your income level. And if they don’t, but they’re still legitimate, make sure you have proof of protection in case the IRS contacts you to request that documentation.
3. Round numbers
The IRS has an easy way to know when taxpayers guess their deductions instead of relying on firm figures: Their deductions consist of perfectly round numbers. Imagine you can claim a medical expense deduction on your taxes, and in the absence of receipts (or if you want to classify them), you have a deduction of $ 4,000. That number is almost too clear to be true, so there’s a good chance that the IRS will question it more than a $ 4,073 claim.
Right now, many Americans are dealing with loss of income, financial insecurity, and health issues, so it’s worth avoiding a scenario where a tax audit is added to your personal list of stressors. Steer clear of the aforementioned triggers, and hopefully you’ll avoid unwanted scrutiny from the IRS this year.