Nothing strikes fear like receiving a notice in the mail from the IRS or your state tax revenue agency that you are being audited.
A NerdWallet.com 2018 Tax Study found 89% of Americans surveyed were worried about making a mistake in filing their income taxes. The top two concerns included being audited and having to pay more after filing.
When it comes to being audited, the good news is that for most Americans, the odds are against it. It is estimated that less than 1% of tax returns are audited.
That doesn’t ease the anxiety.
To help stay under the radar, ConsumerReports.org shared the most common moves that can trigger a closer look by the IRS.
Mistakes: This includes any typos. The IRS estimates people are 20 times more likely to make a mistake on a handwritten form so consider electronic filing. The IRS doesn’t care who made the error, the taxpayer is held accountable. Take the time to double check everything. If you have any questions or doubts regarding your taxes don’t hesitate to tap into free online or local resources at your financial institution or reach out to a reputable professional.
Embellished deductions/credits: Be careful of getting creative with your deductions without having the proof to back it up. The IRS is well aware of the tendency to exaggerate certain credits or common deductions, so understand eligibility requirements and play by the rules. If you list something, have the supporting documentation ready.
Business expenses: Running a small business out of your home? Before taking advantage of the many small business tax credits and deductions, double check it meets the IRS classification of a small business. For example, if your side gig has been losing money for three consecutive years, the IRS may consider it a hobby. A hobby doesn’t qualify for small business tax breaks. Keep good records of any business expenses claimed. Also be sure to report all the income from your side hustle. While thegeneral rule is any income earned over $600 requires a 1099 be filed by each payer, any and all income is subject to US taxation.