Controversy with the IRS is something to be avoided whenever possible. When the IRS puts a taxpayer in their sights the results are usually predictable. The agency will start piling up penalties and interest, seize assets and property, freeze bank accounts, and even start criminal prosecution against the taxpayer sometimes. The IRS will use every resource and weapon that they have available, sinking in their teeth like a rabid dog and refusing to let go.
If you find that you are in an intimidating tax dispute situation with the IRS don’t worry, there is help available and things that you can do. It is better to avoid this situation in the first place. Below we will examine four of the most common red flags that get the attention of the IRS, and these will increase your odds of being audited by the agency. Avoiding these red flags and common mistakes can keep you away from the watchful eyes of the IRS and prevent you from having your life devastated by a tax dispute.
1) Simple mistakes in math are a good way to cause your tax return to be flagged. When you are adding, subtracting, and multiplying always double check the answers to make sure that you avoid simple math mistakes. These small errors could cause you to be audited and start a nightmare scenario. Check your work very carefully, or hire a professional tax preparer or accountant to prepare your tax return for you.
2) Claiming business deductions that seem excessive. Always claim any legitimate business deductions that you qualify for, but if the numbers seem excessive for the industry that you are in then you can expect the tax return to be flagged by the IRS computer system. If you have excessive business deductions then always keep any documentation just in case your return does get audited. This documentation will be very helpful during any audit or tax dispute. Even if you claim legitimate deductions if these are considered excessive for the industry that you work in then you should realize that you will have a higher chance of the return being audited.
3) Failing to report all of the income that you have made. This is especially true if the income will be reported to the IRS by someone else. It may seem tempting to conceal certain income, especially if you think that the IRS will not find out. This is a big mistake though. The IRS has ways of cross checking and many different methods that can be used to uncover income that is not reported on your tax forms. If you fail to report income that you have earned during the year then you can expect to be audited, and failing to report income to the IRS can carry a criminal charge as well as financial penalties.
4) Claiming a dependent when this person is also claimed by someone else. Since all of the tax returns filed are entered into the IRS computer the dependent being claimed on two different taxes will raise a red flag and start a tax dispute or audit. Once this happens then every taxpayer who claimed the dependent will be looked at more closely. If you plan on claiming a dependent that you are entitled to make sure this dependent will not be claimed by anyone else.
Keeping these helpful audit tips in mind when you prepare your tax return can help you avoid any red flags. If you do receive notice of a tax dispute with the IRS then do not panic, contact an experienced tax attorney as soon as possible.