Watch Out for These Red Flags to Avoid an IRS Audit
March 20, 2019
Many clients from across Denver, Aurora, Littleton and surrounds come to us here at Advanced Tax Solutions during tax time in fear of being audited. Truth be told, the IRS does not now nor has never revealed it's auditing criteria. That said, many of the supposed reasons individuals and business have been audited in the past are shrouded in rumor, urban myth, and straight out fiction.
The fact remains that if you have nothing to hide in your tax returns, than you should have nothing to fear. At Advanced Tax Solutions, we’ll tackle your 2019 tax returns with the benefit of several years of experience assisting Denver-area businesses in maximizing their returns, and filing their taxes in a concise, professional and organized manner. What are some of the things that audited tax returns have in common? Read on to find out. Many of these issues may seem obvious, but you’d be surprise about the lengths some people go to to manipulate the IRS —even with the best intentions in mind.
Overtly High Deductions.
Inflating figures and taking rare deductions are a surefire way to have your return flagged at the IRS. It may seem like common sense, but do not unnecessarily inflate figures such as mortgage interest or charitable donations. Firstly, the IRS receives documentation regarding the interest paid on your mortgage from your mortgage broker. Secondly, overstating charitable donations is a mistake since the IRS does not receive information about donations from charities. As such, outlandish donations or donation amounts that are obviously not in line with your income can stand out.
That said, the IRS utilizes confidential, automated statistical algorithms to analyze deductions in comparison to income. Any red flags that these algorithms spark may need to be backed by proof of the individual or business entity via an audit.
Unreported Income
If you have a full-time job, but maybe do a handful of “consulting” projects on the time throughout the tax year, you might be tempted to omit this “side income” form your tax return. After all, you reason with yourself, it’s not your “actual” job. Nevertheless, this course of action is always a mistake. When your federal income tax stipulates that you must report all income —it means all income.
The IRS receives copies of your W-2 and 1099 forms from each of the companies or clients you worked for, and this information is, in, turn, compared to the data you file in your tax return. If that data doesn’t line up, then the possibility of your return being red flagged for an audit drastically increases.
Foreign Financial Accounts
Many individuals, whether on purpose or by accident, fail to report foreign financial accounts in their U.S. tax returns, whether they be bank accounts, brokerage accounts or mutual funds – you may need to report it to the IRS when you file your taxes. Failure to disclose foreign accounts isn’t just a red flag for an IRS audit, it could also result in fines of up to $10,000.
Erroneous or Aggrandized Business Expenditures
The pitfalls of making false claims about your business expenditures on your tax returns are numerous and varied. Businesses that claim more deductions than profits, post rounded numbers for expense values, write off personal expenses such as vehicles or cellphones as businesses expenses, or report a profit loss for their business for too many consecutive years are all flashpoints for both the IRS and their return evaluation apparatus. In addition, as the “gig economy” grows in scope, the IRS is continually monitoring cash-only businesses, such as restaurants and car share driving firms.
Claiming Non-Existent Dependents
Whether by simple mistake, or as one of the more dubious strategies to garner deductions, many split households make the choice to claim children as full-time dependents, even though they no longer file taxes with their child's parent. Given the fact that child custody cases are difficult in their own right, such mistakes are often submitted without nefarious intent, but nonetheless, they are still a routine cause for an IRS review of your tax return. While an official IRS review is not an audit, it could, in, fact lead to an audit if further discrepancies are uncovered.
How Advanced Tax Solutions Can Help
At Advanced Tax Solutions, we’re proud to be one of the Denver, Aurora, Littleton region’s most trusted tax preparers and tax advisors. Our team will carefully and confidentially evaluate your business tax situation and guide you through any potential challenges that arise during the filing both your business and professional tax returns. Whether you have many millions of dollars and assets or simply run a Denver-area small business, our goal is always the same: to minimize your tax liability so that you can keep more of your hard-earned money.
Throughout the calendar year, the knowledgeable and experienced team of tax experts here at Advanced Tax Solutions make it their job to stay up-to-date on current federal and state tax laws through continuing education. That way, we can take advantage of the latest tax codes when we prepare your business tax returns, so you won’t miss out on any tax credits and deductions that you and your family are entitled to.
Contact the the Advanced Tax Solutions team to day to learn how you can avoid an IRS tax review or audit for the 2019 tax season by taking advantage of our many tax filing and tax preparation services for both individuals and businesses.
The fact remains that if you have nothing to hide in your tax returns, than you should have nothing to fear. At Advanced Tax Solutions, we’ll tackle your 2019 tax returns with the benefit of several years of experience assisting Denver-area businesses in maximizing their returns, and filing their taxes in a concise, professional and organized manner. What are some of the things that audited tax returns have in common? Read on to find out. Many of these issues may seem obvious, but you’d be surprise about the lengths some people go to to manipulate the IRS —even with the best intentions in mind.
Overtly High Deductions.
Inflating figures and taking rare deductions are a surefire way to have your return flagged at the IRS. It may seem like common sense, but do not unnecessarily inflate figures such as mortgage interest or charitable donations. Firstly, the IRS receives documentation regarding the interest paid on your mortgage from your mortgage broker. Secondly, overstating charitable donations is a mistake since the IRS does not receive information about donations from charities. As such, outlandish donations or donation amounts that are obviously not in line with your income can stand out.
That said, the IRS utilizes confidential, automated statistical algorithms to analyze deductions in comparison to income. Any red flags that these algorithms spark may need to be backed by proof of the individual or business entity via an audit.
Unreported Income
If you have a full-time job, but maybe do a handful of “consulting” projects on the time throughout the tax year, you might be tempted to omit this “side income” form your tax return. After all, you reason with yourself, it’s not your “actual” job. Nevertheless, this course of action is always a mistake. When your federal income tax stipulates that you must report all income —it means all income.
The IRS receives copies of your W-2 and 1099 forms from each of the companies or clients you worked for, and this information is, in, turn, compared to the data you file in your tax return. If that data doesn’t line up, then the possibility of your return being red flagged for an audit drastically increases.
Foreign Financial Accounts
Many individuals, whether on purpose or by accident, fail to report foreign financial accounts in their U.S. tax returns, whether they be bank accounts, brokerage accounts or mutual funds – you may need to report it to the IRS when you file your taxes. Failure to disclose foreign accounts isn’t just a red flag for an IRS audit, it could also result in fines of up to $10,000.
Erroneous or Aggrandized Business Expenditures
The pitfalls of making false claims about your business expenditures on your tax returns are numerous and varied. Businesses that claim more deductions than profits, post rounded numbers for expense values, write off personal expenses such as vehicles or cellphones as businesses expenses, or report a profit loss for their business for too many consecutive years are all flashpoints for both the IRS and their return evaluation apparatus. In addition, as the “gig economy” grows in scope, the IRS is continually monitoring cash-only businesses, such as restaurants and car share driving firms.
Claiming Non-Existent Dependents
Whether by simple mistake, or as one of the more dubious strategies to garner deductions, many split households make the choice to claim children as full-time dependents, even though they no longer file taxes with their child's parent. Given the fact that child custody cases are difficult in their own right, such mistakes are often submitted without nefarious intent, but nonetheless, they are still a routine cause for an IRS review of your tax return. While an official IRS review is not an audit, it could, in, fact lead to an audit if further discrepancies are uncovered.
How Advanced Tax Solutions Can Help
At Advanced Tax Solutions, we’re proud to be one of the Denver, Aurora, Littleton region’s most trusted tax preparers and tax advisors. Our team will carefully and confidentially evaluate your business tax situation and guide you through any potential challenges that arise during the filing both your business and professional tax returns. Whether you have many millions of dollars and assets or simply run a Denver-area small business, our goal is always the same: to minimize your tax liability so that you can keep more of your hard-earned money.
Throughout the calendar year, the knowledgeable and experienced team of tax experts here at Advanced Tax Solutions make it their job to stay up-to-date on current federal and state tax laws through continuing education. That way, we can take advantage of the latest tax codes when we prepare your business tax returns, so you won’t miss out on any tax credits and deductions that you and your family are entitled to.
Contact the the Advanced Tax Solutions team to day to learn how you can avoid an IRS tax review or audit for the 2019 tax season by taking advantage of our many tax filing and tax preparation services for both individuals and businesses.