SIDESTEP AN AUDIT: WATCH OUT FOR THESE WARNING SIGNALS
Around 1% of Americans is expected to be audited this year and while most of the reasons behind these are random, some are initiated by the taxpayers themselves. Given these, here are a few 'red flags' to help you indicate whether you are at risk of being picked by the IRS for a reviews. Additionally, these can also save you from future troubles.
1. Overpricing donations
Individuals are highly encouraged to donate things like clothes, food, and even cars by offering a deduction in exchange. The catch here is that it is up to the individual to price the goods he gave.
It is a standard that the value of donated items should fall between 1% to 30% of the original purchase cost. However, many are unaware of this. To counter the problem, you may try out tips to ensure a "fair" pricing such as hiring an appraiser to write a letter or make use of the willing-buyer-willing-seller assessment.
2. Erroneous calculations
Basic math mistakes may cost a lot. Make sure your columns add up properly when filing your returns and that gains and losses are properly computed.
3. Forgotten signatures
Surprisingly, a large number of individuals forget to sign their returns, thus, initiating scrutiny as the IRS will speculate on what else you may have neglected to include in your return.
4. Under-reporting salary
A lot of people fall into this. Disclosing all cash you have received for the year whether it is an income of from an asset sale is a must. While there are some who were able to get away with the offense as the system is not perfect, you may still get caught. How? If the person who paid you gets audited, the cash disbursement will be discovered by the IRS and trace it back to you, who failed to report the money.
5. Home office cuts
Be careful of deductions if you base your office at home. Huge slashes in proportion to your earnings may raise questions from the IRS as well. For example, if you obtained an income of $50,000, a deduction of $30,000 may raise some eyebrows. Remember to only subtract items used in your business.
6. Salary thresholds
This one cannot be controlled by the taxpayer. If you earn over $100,000 annually, your chances of being selected for an audit increases remarkably as well. Other areas prone to this are tax shelter investments and small businesses because they tend to get tempted to misreport their wages.
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