Eight Tax Return Items That May Attract IRS Audit

8 common causes for audit of tax return by IRS !

irs audit letterIRS scrutinizing your tax return can be very annoying, anxiety prone and a matter of tension for tax payer costing money and time . You can read what does being audited by the IRS mean? It is seen that  the first clue or doubt  that is responsible for selection of your tax return for Audit by IRS, actually  emanates from your tax return data. So, as the tax season has started and you may be preparing for filing tax return , it is important that you do not commit certain errors that , unnecessarily , puts your tax return in doubtful category  by the computerized system that selects a very small percentage of tax return for IRS audit or scrutiny . Here are most common reasons  for IRS audit triggers 

Unreported Income Info

One of most common reason for selection of your tax return is any  discrepancy between your reported income and the information that IRS has already through various statutory reports and 1099 forms like 1099-MISC or 1099-K reporting side income or 1099-INT showing taxable interest .Your tax return data are matched with the data available with IRS and if there is a  discrepancy, IRS system will raise a red flag on your tax return . In fact , that discrepancies alone  will trigger for an irs audit letter.

 Changing Filing Status Abruptly

Choosing the right filing status  can be difficult for married couples, especially if one spouse does not work. Likewise, changing your status abruptly can invite attention of the IRS.This situation often occurs when  you get divorced and consequently  plan to file as a single or head of household, you may invite the scrutiny of your return.

Rental Income

One of the most common type of tax return chosen for  tax audit by IRS is tax return showing rental income. The state and local taxes rule now limits deduction from rental income  to $10,000. The Federal Tax law provides that if you rent out space — whether a whole house or a room — for more than 14 days of the year, income from rental income has to be reported after eligible deduction like  local licensing, fees you pay for advertising and marketing . There can also be deduction out of rental income of expenses like repairs, mortgage interest, property taxes, utilities on a prorated basis .

One of the main doubts of IRS about rental income among IRS is that people earning rental income  try to write off substantially more than they’re entitled to. Further  , if your tax return shows loss from rental of properties years after years , that also is a cause for selection of your tax return for audit by IRS

Sudden Large Charitable Donations

The main cause of doubts by IRS on account of sudden ump in charitable donations is that IRS system has already analysis of the donations given by various income levels i.e what is the average donation given in percentage terms by people falling under a  particular  income range . So the moment , the donation appears to be over those limits , IRS system will raise the Red Flag on your tax return and may select for scrutiny or audit. Thus , it is quite normal for  the IRS to scrutinize tax returns with a large charitable-donation deduction relative to the reported income on the return.Of course, as long as you have the proper documentation to prove your donations, there is nothing to fear  IRS audit.

 

Overseas accounts

Having an account in a foreign country is not illegal , but not reporting such an account to IRS is an invitation to IRS audit and  charge of  willful violation of reporting rules. For U.S. citizens living on U.S. soil, you must report it on Form 8938 as part of your tax return if the value of your overseas account’s assets was :

  1. more than $50,000 ($100,000 for married couples filing jointly) on the last day of the tax year, or
  2. more than $75,000 ($150,000 for married couples) at any time during the year,

Readers should note that the liability to report foreign accounts on Form 8938 is not same as  FBAR (Foreign Bank and Financial Accounts) reporting under which a us citizen  with more than $10,000 held overseas must file a separate report FBAR report electronically.

 

Errors and Omitted Information

Mistakes happen in life every now and again, but even an honest mistake while filing tax return can create  a headache in for of IRS audit. Therefore , paying close attention to minute details while filing tax return will save you money and time . So , if you make a mathematical error, it will more than likely be noticed by the IRS, leading to your return being audited.

Before you submit your return either by mail or electronically, you should make sure that you have included all of the required information. You should also make sure all of your numbers add up and that you have not made a simple mistake that could lead to a costly audit later.

Excessive Earned Income Credit Claim

The Government provides tax  relief to  many low-income families through  the Earned Income Credit, or EIC . Since this leads to huge refund  the IRS to audit tax payers who have  claimed  EIC credit in the tax  .

Round Numbers

Just as you should not make mathematical errors on your returns, you also should not round up your numbers. Rounded numbers and perfectly even sums make your return seem suspicious.

The IRS expects to see odd numbers and decimal points. When you want to avoid an audit, you should report the numbers as they actually are and avoid rounding up or estimating your totals.

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