If you are currently living and working in the United States, one thing you should know is how to avoid tax audit red flags. You know that you must unfortunately pay taxes every year. The government must take a portion of everyone’s income in order to have money to run its many programs. The Internal Revenue Service, or IRS, is the agency in charge of collecting people’s taxes and monitoring who has and has not paid their taxes. If you want to avoid getting special attention from the IRS, here are a few actions, or “red flags,” you should avoid.
One important red flag is having assets overseas. If you currently have money in an account overseas, then technically it is taxed by the government. Many people do not report this money, however. In 2009, the government started a voluntary disclosure program, where people can admit to doing certain things on their tax form.
Many people have admitted to having money overseas, and the government has taken advantage of this. If you currently have money in an account overseas, be aware that is supposed to be taxed like right along with the rest of your money. If you write on your tax return that you do business in foreign countries and are out of the country often for work, this could raise suspicion in the IRS and could trigger an audit. Another important thing to be wary of is messy divorces.
Many times, after a messy divorce, one of the partners will try to get revenge on the other partner by reporting them to the IRS for tax crimes they supposedly committed. Sometimes the other partner will have actually committed these crimes, sometimes they will have not. Beware of vindictive ex-husbands and ex-wives. Sometimes they do not have your best areas at heart.
Another tax audit red flag is having too many zeros on your tax form. This has to do with rounding. On your tax form, you are allowed to round to the nearest dollar, but you are not allowed to round to the nearest thousand. For example, if you paid $4,680 in gas mileage, but you write on your tax form that you paid $5,000, that is against the rules. You may be able to get away with doing this on one figure, but if you do it for more than one, the IRS will probably notice and come audit you. Avoid getting audited by being honest on your form about how much you’re spending.
Another important red flag is unreported income. Sometimes people make money outside of their regular paycheck, and they do not pay taxes on this income. Sometimes people honestly do forget to pay taxes on this income, but sometimes they do it on purpose. If you are concerned about whether or not you are at risk for a tax audit, you could hire a financial professional like a tax lawyer to help you with your situation.
- Income Tax Audit: Pixabay