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How to Avoid Being Audited by the IRS

For many, the good vibes of the holiday season may soon fizzle with the Jan. 23rd start date of tax filing season. In this issue, we’ll share things to avoid that could increase your chances of being audited by the Internal Revenue Service (IRS).

What is an IRS audit?

Simply put, an audit carried out by the IRS is an examination of your individual or business financial records. The goal of the audit is to make sure you’ve filed your tax return correctly and accurately.

How likely are you to be audited?

Two words: not likely. Over the last three (3) years, less than 1% of tax filers have been audited. In 2014, just 0.86% of the total tax returns were audited. While most audits are typically initiated within two (2) years of your filing, the IRS maintains a three-year (3) statute of limitation to go over previous returns.

What could trigger an IRS audit?

While there’s certainly no guarantees that you’ll completely avoid being audited, avoiding these things will decrease your chances of drawing attention from the IRS:

  • Filing a paper return Whether it’s a simple easy-to-make mathematical error or hard-to-read handwriting, paper returns reportedly have a 21% error rate compared to 0.5% of e-filed returns. Either way, mistakes – intentional or not – are a good way to be audited.
  • Receiving the Earned Income Credit (EITC) but no adjusted gross income Low-income households are not immune to IRS audits. In fact, if you receive the EITC and have no adjusted gross income, you’re at a much greater risk of being put under the IRS magnifying glass. That’s because there’s been a large amount of fraud associated with the EITC. The IRS estimates that there is between 21% and 26% fraudulent EITC payments made each year.
  • Reporting too many Schedule C losses New businesses are expected to report losses via Schedule C but write-offs for ongoing losses can alert the IRS. If you continue to post losses for consecutive years, the net loss on your original return could be wiped out.
  • Claiming lots of business expenses Business expenses are expected but you need to be careful. If you’re unsure about an expense, ask yourself if the service or product is necessary to do your job. If it is, you’re probably safe to write it off.

If you have financial questions, call The Oswalt Law Group

Our legal team can help you understand your rights and the options you have concerning your financial situation. To schedule a free consultation, call us at 602-225-2222

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