The possibility of being audited, for most taxpayers, is slight. However, it does little to stop people from worrying about the prospect. A reliable corporate tax accounting firm can help in eliminating the risk of audits. However, there are a few things taxpayers do that can land them in trouble. Here are a few mistakes that people make while preparing taxes:
Making Small Errors that Can Prove Costly
Even a small mistake like making math errors, or giving incorrect Social Security Numbers, or omitting to attach important forms can lead to grave consequences. These errors may seem like simple mistakes, but they can result in your return being scrutinized by the IRS. In many cases, the system issues a notice automatically, requesting clarification. However, the risk remains that these errors can flag your return, which can further lead to a manual examination by the IRS staff.
Omitting Taxable Incomes
The IRS forms the basis of an automated system that is devised to process returns quickly and look for any discrepancies. A part of this process requires matching the information put forward by the financial firms and employers on W-2 and 1099 forms with that on the taxpayers’ returns. If and when the numbers mismatch, it can trigger inquiries from the IRS. It shows that even though at the time of preparing taxes, it might seem harmless to omit a $20 bill, it could mean that your return will attract a closer look from the govt.
Not Being Careful with Deductions
If you are a wealthy person, the chances of your finances being audited go up. As per the IRS Data Book, individual taxpayers are audited at a rate of 0.8%. However, when the income is more than $200,000, the rate has been observed to go up to 2%. Though earning a sizeable income is not a crime, not reducing the taxes by leveraging deduction is a huge misstep. If your income is closer to the $200,000 mark, you must ensure that your contributions to HSA or a traditional 401(k) plan are maxed out.
Inflating Donations to Charity
It is always better to be strategic with deductions. However, inflating numbers is never the right thing to do. It is a gamble that can invite an audit. Normally, what causes someone to be audited is to fall away from the expectation of their tax bracket. One of the most common areas that can be easily distorted is the donations to charity, especially donations of goods to Non-profit organizations. Even though these deductions are legal and valid, trying to claim higher donations than what is allowed in your tax bracket can trigger an IRS audit.
Failing to Produce Proper Documents
In most of the previous cases, the IRS usually issues a notice requesting more information. Submitting accurate documents can quickly solve the matter, but failure in producing the required documents can result in greater inspection and can even lead to an audit. Generally, an audit is not a pleasant experience, and without appropriate information and supporting documents on returns, it can soon turn into a nightmare.
Tax experts believe that having accurate information in your income tax files goes a long way towards bailing you out of trouble. That is the reason why every taxpayer should try to avoid each of the mistakes mentioned above. So, if you wish to avoid being audited in the first place, you should look for a qualified and well-experienced corporate tax accounting firm who can do the needful to keep you out of such sticky situations.
Read More here : Why do you need a Corporate Tax Consultant.