5 Red Flags That Could Attract an IRS Audit
If you make more than $1 million per year, there is 6.21% chance that you will be audited. While this does not sound like much, this is nearly double the chance (3.62%) at which someone making between $500K and $1 million has. Those who are making north of $10 million face the most danger of being audited. 16.22% of all citizens in this bracket faced scrutiny.
At Tax Reduction Concierge, we know that no one likes to pay more than they have to. There are various tax solutions that we provide that can help you avoid a tax audit. Check out our guide on what to do to make sure the authorities are not breathing down your neck.
One way or another, your income tax return is going into an IRS computer. Any math errors, no matter how big or small, are going to produce a notice from the system. It does not matter if it was intentional, or a mistake. Not carrying a number over or making a typo is a surefire way to get the IRS’s attention.
You are legally responsible for your tax documents. Sometimes, if you are busy running your business, it is a good idea to let someone else file your taxes. As a business owner, you may be juggling operations and marketing and everything else that comes with reaching greater profitability, and lose your ability to focus on taxes. Explaining to a tax collector that you made a subtraction error is not only embarrassing, it can be a major headache.
Disproportionate Charitable Contributions
The IRS follows your taxes year after year. Many entrepreneurs and business owners give to their community. When your income goes up, your charitable contributions will probably go up too. The issue is that charitable contributions are probably not going to double from one year to the next.
Similarly, if you report an income of $15 million in a year, and say that you gave $5 million to charity, you are going to have to produce a significant number of receipts to get the IRS off of your back. Giving to charity can help the less fortunate. When you donate, make sure that you document it.
Breaking the Rules on Foreign Accounts
The IRS is coming after a lot of foreign bank accounts. Since the passing of the 2010 Foreign Account Tax Compliance Act, companies have had to deal with more stringent reporting rules. Banks in other countries now have to identify American asset holders, and provide certain pieces of information to the IRS.
In the past, all you had to do was essentially claim that you had an overseas account. Now, you must identify the bank, and the highest dollar amount the account had in the business year. The IRS believes that if you have a foreign account, you are trying to hide something. Being open about what you have and where is a good way to avoid trouble.
Overdoing Business Expenses
Don’t mix business life with personal life. That is a solid motto, and it applies just as well to your taxes. If the IRS sees a big jump from year to year, or they see a disproportionate amount of business expenses, they are going to have a few questions for you. It can help to keep your documents in order, and make sure you have a valid reason for all of your expenditures.
Doing Business with Shady People
Certain tax experts will sell you on a wide range of financial vehicles. When the tax men come to the door, that unscrupulous tax advisor will be out of reach. It is a good idea to double-check and triple-check their calculations and what they are doing. Overly aggressive tax strategies will be punished. The IRS has a solid indication of who the good and bad tax experts are, and the authorities know what they are doing wrong.
If someone tells the IRS that another individual did not file their taxes right, the IRS will generally listen. The easiest way to not deal with an audit is to surround yourself with people and tax advisors who are not under audits themselves.
Tax Reduction Concierge wants to help you out. Our innovative tax solutions are all compliant with the IRS’s rules and regulations. We know how to reduce your tax liability in a completely legal way. Call us today at (800) 575-8496.
January 12, 2018 4:49 pm
Categories: Business Taxes