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Why does the IRS conduct audits on taxes? The IRS is simply double-checking your numbers to make sure that you’re reporting things correctly. Sometimes the IRS does audits randomly, however, there are suspicious ‘activities’ that might trigger one for you.
Here are 4 tax mistakes that are likely to trigger an audit on your tax return.
As a taxpayer, ensure that the income you report on your returns is consistent with the income that’s stated in official income tax documents such as 1099 or W-2
Writing off expenses for a business is allowable but writing off expenses for a hobby is not. Typically, if you have not shown a profit from your business in at least three out of five years that you operate your business, then the IRS will view your business as a hobby. If so, then you are limited in the amount of your deductions for expenses relating to activities not engaged in for profit
Additionally, if you claim transportation expenses, you’ll need to document the mileage used for work. Deducting 100% of your personal vehicle as a business expense, is definitely going to raise a flag.
If you itemize your deductions, you can claim cash donations to recognized charities. These include the value of donated clothes, cars or other items. However, if the donations seem out of line with your income, the IRS will take a closer look. For instance, if the donations are half your income.
Proper record keeping is important. Keep your receipts and other documentation safe for use during your tax filing, and in case the IRS sends you that dreaded letter. Work with a tax professional too, this will save you by a lot.