Tag: Audit

Top 10 Reasons for a Tax Audit

A tax audit can occur for several different reasons that most people are not aware of.  You will have to comply with at least two of these factors before you have anything to worry about.

The most popular reason for a tax audit is unreported income.  Here, there is a lot of paperwork that must be filled out and completed.  When the paperwork contains errors or does not get turned it at all, issues can start to occur.  This type of paperwork is also time sensitive and should be received in order to file by January 31st.

Improperly prepared tax returns are the second most common reason for a tax audit.  In the event that your tax forms are filled out or filed incorrectly, this will definitely have the IRS breathing down your neck.  In this case, many people decide to round numbers or estimate amounts when it comes to their deductions.  When information is repeatedly misrepresented and estimated, the IRS may view this type of activity as a red flag.

A drastic increase or decrease reported income can raise a few eyebrows within the IRS.  When income amounts fluctuate a great deal, whether it is an increase or decrease, this could insinuate that somewhere along the line, income was not reported.  Taxpayers may also be tempted to hide assets such as bank accounts but in many cases, the IRS can find out.

Income that is not enough to support the individual’s current lifestyle can also become an interest of the IRS.  If you report things, such as a mortgage or other type of tax on property but do not show income that can represent proof of these allegations, this may pose additional issues.

Claiming charitable contributions can also get you into trouble with the IRS.  Some may claim to have given a specific amount but the IRS may look for documentation to prove your contribution.  The IRS provides information on how to properly report charitable contributions.  A safe percentage in this case would be anywhere from 2% to 5%.

If you are claiming business expenses, make sure expenses are business-related.  Many taxpayers have reported expenses that have turned out to be personally related.  Also, keep in mind of purchases made with business funds but have been used for personal reasons.  Be sure to document expenses such as travel and equipment purchases correctly in order to obtain the proper credit.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to how to setup an umbrella company.

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Tax Return Mistakes To Avoid

For someone who is getting ready to file their personal income taxes, it is easy for them to be eager about the money that may be coming their way. This can cause someone to make mistakes on their tax forms, and to make mistakes that may end up costing them money, or getting them into trouble. One thing that not everyone wants is a tax audit, and this can often be caused by improperly filed taxes. There are many different things that you will want to remember when filing your 2010 taxes, to avoid an audit or additional problems after you submit your return.

The first is to make sure that you claim every single source of income that you have. This can be many different things that you do not think of, such as babysitting, garage sales, having a roommate, or if you do any freelance work on the side of your regular job. You will also want to have all documentation and paperwork for these different things, so there is no confusion when you need to provide documentation. People also make mistakes when they calculate their tax forms, so to avoid any hassles you want to double and triple check all of your calculations.

Other things that may catch the attention of the IRS is when someone tries to claim their own home as their personal office, or for other business purposes. There are limitations to the amount of money that you can write off for your own personal business, so you want to look into all of them before you file your 2010 tax return. You never want to be audited by the IRS, especially if you have done something wrong, because there are severe consequences. Double-check your work, and your documentations, to avoid and 2010 tax return mistakes.

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