While the chances that your return will be chosen for an audit are slim, you never know when you will be one On the IRS hit list. Here are 6 relatively easy ways to steer clear of an audit.
Dematerialisation of securities of private companies
Audit Red Flags Of The IRS
1. AUDIT
RED FLAGS
OF THE IRS
WHILE THE CHANCES THAT YOUR RETURN WILL BE
CHOSEN FOR AN AUDIT ARE SLIM, YOU NEVER KNOW
WHEN YOU WILL BE ONE ON THE IRS HIT LIST.
HERE ARE 6 RELATIVELY EASY WAYS TO STEER
CLEAR OF AN AUDIT:
2. REPORT EVERY PENNY
EARNED
Most employee wages or salaries are reported on W-2 forms, while other
income like interest, dividends and capital gains are reported on 1099s, as is
income earned by independent contractors or freelancers. Those forms are
sent to both you and the IRS. So be sure to include all information from
them on your federal tax return.
3. RUN A SMALL BUSINESS?
SHOW IT.
The IRS understands that very few people make a profit when they first
start their own business. However, there is a limit to how long you can stress
their understanding. If you report losses for three or more years out of the
last five, then agency will start to suspect your business is more of a hobby
than a venture aimed at turning a profit.
4. IF ANYTHING LOOKS
STRANGE, EXPLAIN IT.
The IRS is on the lookout for unreported income, so if something looks
strange or questionable on your tax return, they may want to investigate
further with an audit. For example, if your income is too low to live on given
where you live and your family size, include a disclosure statement detailing
how you supported yourself, including any savings, loans or credit cards that
you used to pay the bills.
5. WATCH OUT FOR THE HOME
OFFICE DEDUCTIONS!
Generally your office is at one place – it may a rental space or in your home.
So don't report a deduction for both. If you legitimately have offices in both
places, explain why in a disclosure statement. Remember, the home office
deduction can only be used for space in your home used exclusively for
conducting business.
6. BE HONEST ABOUT ANY
MONEY ABROAD
U.S. taxpayers who have any income earned in bank accounts or
investment accounts abroad must report it to the IRS. While that's always
been the case, under the relatively new Foreign Account Tax Compliance
Act (FATCA) your foreign financial institution may soon start to report that
information to the IRS like any other bank or brokerage would in
the United States.
7. REPORT THE SALE OF
PROPERTY
When you sell your home, the title company will send you and the IRS
a 1099-S form, recording the proceeds from the sale. Even if all your capital
gains on the sale are tax-exempt (because they didn't exceed $250,000 if
you're single or $500,000 if you're married), it is recommended that you
report information from that 1099-S on your return anyway.
8. To Learn More
Visit
www.taxdefensenetwork.com
Or Call
(800) 691-5390
Source: Sahadi, Jeanne. “8 Tax Audit Red Flags.” CNN Money. Cable News Network, 25 February 2015. Web. 16 September 2015. <http://money.cnn.com/2015/02/24/pf/taxes/tax-audit-
red-flags/index.html>