What is the IRS targeting this year? That’s right; we are talking about the returns that the IRS plans on auditing. With the millions of tax returns that are filed with the IRS each year, there is only a few that will be audited.
Hopefully, we will be able to avoid the audit, but here are a few of the returns that fall into the “high risk” category and have a higher probability of being audited:
Returns that itemize deductions—Taxpayers who include a Schedule A with their 1040 have a greater possibility of fraud or error by the taxpayer thus is a target for the IRS auditing team. Especially those with excessive unreimbursed business expenses. Keep all your receipts and a log book of the miles you drive for work.
Self-Employed Taxpayers—Taxpayers who report income on Schedule C or E are often targets of the IRS. Simply, the number of expenses that can be claimed as deductions often leads to increased fraud. If you are reporting net losses this makes you a prime suspect. Small Business owners fall into this same category. If you own a business like a small coffee shop, a heating and air conditioning business or even small retail shops are going to be looked at carefully. It is very easy to submit an erroneous return.
High Cash businesses—A business that handles a large amount of cash on a regular basis will be targeted. These types of businesses historically have underreported income and therefore have welcomed the auditors to their businesses quite often.
As a friendly reminder, if you are in one of these businesses it doesn’t mean that you will be audited, but if you are, the IRS is not declaring you a criminal. Many returns are selected at random. As long as you have not purposively misreported information, then you don’t need to worry about the audit. In the event that the IRS finds an error, then they will notify you in writing of the discrepancy and tell you how much more you owe.
Keep your financial documents! It is important to keep the information such as your W2, tax receipts, and other documents to help prove the information that you reported on your return. This is especially true for donations and business expenses.
If you have any questions, or want to make sure you receive all the credits and deductions you deserve, visit your local income tax professional at Liberty Tax Service®.