In Washington, facing an IRS audit can be a daunting experience. Whether you’re a business owner or an individual taxpayer, it’s essential to understand the reasons why the IRS might choose to audit you.
Discrepancies in reported income
When the income on your tax return doesn’t align with figures reported by employers, banks, or other sources, it can prompt an audit. To prevent this, make sure all income streams are correctly accounted for on your return, avoiding any mismatches.
Suspicious deductions or credits
Unusually large deductions or tax credits relative to your income or industry norms can attract IRS attention. Always verify that your deductions and credits are legitimate and have proper documentation to support them.
Large charitable contributions
While charitable donations are tax-deductible, excessive or inflated claims without proper documentation can invite scrutiny. Keep detailed records of donations, including receipts and acknowledgment letters, to substantiate your claims.
Self-employment income
Self-employed individuals are more susceptible to IRS audits due to the potential for underreporting income or overstating expenses. Maintain thorough records of income, expenses, and business activities to support your tax filings.
Failure to report foreign assets
The IRS closely monitors foreign financial accounts and assets. Not reporting money you earn from other countries or not telling the IRS about foreign bank accounts can result in a tax issue. Ensure compliance with Foreign Bank Account Reporting (FBAR) requirements.
Navigating IRS audits can be complex, but understanding the potential triggers can help you avoid unnecessary scrutiny. Stay vigilant about accurately reporting income, deductions, and credits.
