Tax Accountant Firm: Top Reasons You’ll Get an IRS Audit
Tax Accountant Firm
Tax Accountant Firm | From mathematical errors to unawareness, there are various reasons why taxpayers face an IRS audit. You can make mistakes in tax returns. Some taxpayers even try to manipulate the deductions and credits.
Let us briefly discuss what are some of the common reasons that you may face an IRS tax audit.
Top Reasons You’ll Get an IRS Audit
The IRS makes sure that you file correct tax returns. The IRS is on the hunt for any tax evasions, mistakes, or avoidance practices.
You may make mistakes in filing your tax returns. Often, a taxpayer files wrong returns due to a lack of awareness of the tax regulations and changes.
Only a small number of taxpayers get audited by the IRS. There are various reasons for the IRS to audit your returns. For this reason, hiring a Tax Accountant Firm is always recommended.
Here are our top-picked reasons that you must be careful of.
Failing to Report All Income
If you have more than one source of income, you must disclose all of them in your tax returns. Fortunately, your Tax Accountant Firm will help you with this. However, failing to report all income will get you an IRS audit call.
Suppose you run a small business. Meanwhile, you write as a freelancer and earn a few extra bucks regularly. You only show your business income in your tax returns. Skipping the freelancing income is a red flag that the IRS will catch for sure.
Wrong Self-Employment Returns
Self-employed persons do not receive a paycheck. Their business income passes through their accounts. They are also entitled to many deductions and tax credits that employees and other business types are not.
At the same time, self-employed persons take too many deductions and credits. Sometimes, they do not calculate the deductions in the right proportion. However, a Tax Accountant Firm can help to assure the proper expenses are reported.
Deducting Too Many Business Expenses
Small businesses often make this mistake. Without proper accounting practices or hiring a Tax Accountant Firm, they do not allocate business expenses properly.
Many businesses share their home space for office use. Similarly, they share a vehicle and office equipment such as a PC or printer. They deduct too many of these expenses from their business income.
If you deduct these expenses in a larger proportion than the usage for business purposes, you can get caught. You may be doing it unintentionally but that may lead you to make an explanation to the IRS.
You Deal in a Lot of Cash
Some businesses usually deal in cash such as saloons, barbers, cafes, and other small retail businesses. It is fine to make all transactions in cash.
The problem arises when the IRS notices large cash transactions that do not match the revenue stream of your business. If you deal in a lot of cash, chances are you’ll get an IRS audit visit.
Reporting Too Many Losses
Another major mistake made by self-employed and small business owners is to report too many losses on the Schedule C form.
They do it by showing personal expenses as a business. It lowers the business income and eventually the taxes owed to the IRS. However, it is a major red flag for the IRS.
The wise thing is to deduct only the business proportion of expenses from the business income. Otherwise, you’re prompting the IRS to ponder why you would run a loss-making business continuously. Avoid this mistake with a Tax Accountant Firm.
Showing Too Many Deductions
Another common mistake made by small business owners is showing too many deductions on Schedule C. It is a similar practice to deducting too many business expenses.
For example, a self-employed person purchases a new laptop that is used for both personal and business purposes. Deducting the total cost of the laptop is inaccurate and such practices can get you an IRS audit mail as well.
Failing to Report Assets Abroad
Some large businesses and individuals place their assets abroad. These assets can be in the form of cash in foreign bank accounts or property abroad. In any case, if you do not disclose your foreign assets and income, it is a big red flag for the IRS.
The IRS is always on the hunt for such taxpayers. The US has double-tax treaties with several tax jurisdictions. You can take full advantage of these treaties. However, you need to disclose foreign income in your tax returns properly to avoid the IRS audit.