My tax licensed has long expired so I found a tax writer for this article: author Megan Elliott.
Get the Lowest Interest Rate, Fees, and Fastest Service
YouTube – Straight Talk Lending – Daniel Dobbs
Megan is a Money & Career, Health & Fitness, and Culture Writer at The Cheat Sheet. She has a master’s degree in media studies from the New School University. Her writings have appeared in the Journal of Financial Planning and other publications.
Virtually all agents are paid 1099 (as are MLOs)!
Or have their own corporation with K-1s’ and that makes us audit targets!
Nearly a quarter of Americans are worried about the possibility of an IRS audit, a 2017 Rasmussen Poll found. That’s the highest level in 10 years.
Most lose sleep about something that never happens; of 146M taxpayers, fewer than 1%, (1.2M), had their returns audited, according to the IRS.
Budget cuts have reduced the number of audits considerably. “No specific deductions raise a taxpayer’s chances of being audited, but there are actions that raise red flags & are to be avoided,” Dave Du Val, the chief customer advocacy officer for TaxAudit.com, told The Cheat Sheet.
Here are the top 15, 1 of which needs no explanation!
Surviving IRS Audits
Broker and Agents are Targets!
IRS Statute of Limitations for Audits
1. You’re Rich
Middle-income taxpayers are rarely audited, according to IRS data. Of all tax returns filed in 2014, the IRS did not examine over 99% of those with incomes between $25,000 and $200,000.
Once your income crosses the $200K mark, your audit risk steadily climbs.
About 1.5% of taxpayers who made between $200,000 and $500,000 were audited, along with 8.42% of those earning between $1 million & $5 million.
2. You’re Very Poor (Or Look It)
The IRS tends to take a closer look at high-income taxpayers, but a return showing very low or no income also raises red flags.
In 2015, 3.78% of returns showing no adjusted gross income were audited, along with 1% of those with income less than $25,000.
3. Charitable Contributions Seem Really High
For example, the average charitable deduction people who earn between $75,000 and $100,000 claimed is $3,356.
How Government Liens Impact Buyers!
4. Work-Related Deductions Are Excessive
Excessive deductions for employee expenses that weren’t reimbursed are also likely to catch the eye of the IRS.
Work-related expenses are deductible, i.e. costs of traveling, biz meals: but some pad deductions by claiming things not eligible such as dry cleaning.
5) Rental Property Expenses are Suspicious
Owning a rental property is a way to earn extra income, but for novice landlords, it can also be a tax trap. Confused property owners might claim deductions incorrectly, subjecting themselves to an audit.
Inflated rental expenses are frequently caught in the IRS net.
Some deductions on the Schedule E, where the income and expenses for rentals are reported, can be easily misinterpreted.
6) Expenses and Income Don’t Line Up
The IRS sees millions of returns every year, so it has a good idea of what’s normal for someone with a particular income or in a certain line of work.
Earning $50K a yr. & claiming $35k in employee expenses its aproblem!
Claiming expenses not typical in your field — i.e.as big mileage deductions if your work doesn’t typically require travel — is another red flag.
7. You’ve Claimed Someone Else’s Dependent as Your Own.
IRS Statute of Limitations for Audits
8. You’re Self-employed
Self-employed taxpayers who file a Schedule C are more likely to be audited than those who work for a traditional employer.
Between 2% and 2.5% of individual tax returns with business income of more than $25,000 were audited in 2014, according to the IRS.
If you do work for yourself, keep meticulous records of income and expenses, just in case the IRS does come calling.
IRS Statute of Limitations
9. You’ve Claimed Business Credits You’re Not Entitled To
Falsely claiming business tax credits is one of the “dirty dozen” tax scams the IRS specifically tells taxpayers to avoid. And there’s no statue of limitations for these!
10. You’ve Lied About Your Income
Lying about your income is one of the easiest ways to cheat on your taxes. It’s also one of the easiest ways to get caught.
The IRS matches up the income you report on your return with the W-2 and 1099 forms it receives from your employer, broker, or anyone else who paid you money in the previous year.
11. You’re an Expat!
Americans living abroad filing taxes a nightmare due to a confusing array of forms. Those forms have a higher audit risk, says noted Greenback Expat Tax Services. Overall, 4.3% of international returns were audited in 2014.
12. You Had to File a “Estate Tax Return”
Estate taxes, only apply to estates more than $5.45 million. If a rich relative passed away recently, a tax return for their estate will get extra scrutiny.
8% of estate tax returns were audited in 2014. The IRS audited 16% of returns for estates worth $5M to $10M and 32% of those worth over $10M.
13. Math Errors
Math mistakes catch the IRS’ attention,& taxpayers made 2.2 million in 2015. Fortunately, an audit isn’t inevitable because you added incorrectly.
You’ll get a notice, saying you made a mistake and owe more money or get a larger refund. But an error could expose your return to extra scrutiny.
14. You Make a Lot of Cash Transactions!
It’s hard to keep track of and easy to hide, so it’s difficult to know whether someone who deals with a lot of cash is paying all their taxes.
Running a cash business or having a job with a lor of cash (i.e server / cab driver), you are at risk for an audit, warned Brotman Law.
The IRS also receives information about large cash transactions & suspicious activity from banks, which it uses to determine whom to audit.
15. You Made a Frivolous Tax Argument
People who hate taxes make some convoluted arguments in order to get out of paying the IRS. If you are a “tax protester” you are going to jail with a hefty fine and audits back to when you worked at McDonalds! Period!
Copywrite © August, 2018 Daniel Dobbs MHM Mortgage /// All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Daniel Dobbs, Author- VP-Broker Mutual Home Mortgage 265 S. Randolph #120 Brea, Ca. 92821 Cell: 949 250-3981 Dandobbs6@gmail.com NMLS #307631 BRE #00986886