Audit is undoubtedly one of the scariest words for most American taxpayers. Although it’s true that a tax audit can definitely be a matter of gross inconvenience, yet at the same time it is also true that the entire chance of being audited by Uncle Sam is also pretty slim. Just 1% of all tax returns received by the IRS are chosen for a closer and scrutinized view. So, you can be more than sure that you won’t fall in that risky 1%.
But what if you’re the one chosen by the IRS? What would you do apart from sulking and being anxious? Hey, you need not fret as there are smart ways in which you can file tax return and be sure that there are reduced chances of you being called for an IRS audit. Let’s take a look at some such mistakes which take you closer to an audit and know how you can avoid them.
Not filing quarterly taxes
If you were a police officer, teacher, employer of some business organization, chances are high that your employer would withhold state, federal, local, Social Security and Medicare taxes from each of your paycheck. However the fact is that being an entrepreneur, it is entirely your obligation to set aside a part of your income to pay taxes every quarter. You call them quarterly taxes or estimated taxes and such taxes are applicable on income from interest rent, earnings from business ownership, being self-employed and from dividends.
Not reporting all your income
Firstly, not reporting income from a 1099 or a W-2 is one of the easiest ways of ensuring yourself for an audit. It may be hard to forget to report W-2 income as that is your primary job but in case you also have a passive income on one side or you had a part-time job earlier, that could definitely slip off your mind. Double-check to ensure that your entire income is accounted for. Remember that the IRS gets copies of the W-2s and 1099s which you receive and hence whenever the numbers fail to match, you’ll definitely be targeted.
Earning a huge amount of money
Although rates of IRS audits are low enough but when there is a sudden and unnatural rise in income, the IRS notices that. Incomes which reach above $200,000 had twice chances of an audit of the 0.85% national average in 2015, as per what IRS said. Therefore it’s vital to keep detailed record of your finances whenever you start making money. In case you don’t think you can manage this record-keeping on your own, hire an income tax specialist who can do these jobs on your behalf.
If you’re a resident of Miami, you may watch out for income tax consultants in Miami so that you may thrust your responsibilities on him and sit back and relax during the tax season. Use tax calculation software in order to reduce your time.