March 8, 2018
Tips to avoid two common audit triggers
Filing taxes is often a frustrating process. This frustration can grow exponentially in the event that a tax return triggers an audit by the Internal Revenue Service (IRS). You can mitigate the risk of becoming the target of an audit by becoming familiar with common triggers.
When does the IRS conduct an audit? A number of factors can contribute to an audit. Two common triggersinclude:
- Discrepancies. It is important to have the income you report on your tax filing match the numbers reported to the IRS exactly.
- Deductions. This is another area where precision is important. Any deduction taken for expenses should match the actual cost. Do not round the number up for convenience. The IRS will also take note if the deductions taken are disproportionately high compared to your income. Be sure to keep all paperwork in order if a high deduction is legitimate.
What does the IRS look for during an audit? As noted above, one of the big things the IRS looks into is a discrepancy in income reporting. Additional areas the agency will look into during an audit include property valuations and unreported gifts or inheritance. A failure to handle these issues correctly can result in tax penalties.
What are the potential penalties of an audit? Penalties can include civil fraud penalties, civil penalties and interest payments. If an interest payment penalty is given, the penalty amount is generally based on an interest rate applied to the applicable late tax payments. If the IRS determines that the taxpayer that is the subject of the audit underpaid their tax obligation, a civil penalty of up to 20 percent in addition to the due tax could apply.
If the IRS claims that the discrepancy is the result of fraud, the accused could face a number of additional civil fraud penalties. This can include a penalty payment of 75 percent of the tax due.
What should a person or business owner do if the subject of an audit? Individuals or businesses have legal options in the event of an audit. An attorney experienced in these matters can help level the playing field between IRS agents and the taxpayer. This professional can work to resolve your matter in a manner that preserves your rights and interests.