Taxes can be confusing and many fear that if they make a mistake on their return, the government will condemn them to death in writing through an audit procedure. Although your chances of being audited are low, this can happen, especially if you make one of the following mistakes. Before filing your return, take one last look to make sure you do not notice any of these red flags.
1. You forget to declare part of your income
The surest way to trigger an audit is to hide some of your money from the government. Whether intentional or not, the government does not forgive when it comes to reporting bad taxable income, especially if it is significantly reduced. If you received a 1099 or a W-2, the government already knows that you have earned this money because your employer has also sent this information to the IRS. If your tax return does not match the government's data, he can start asking questions. Even if you have not earned enough money to receive a 1099 salary or if you have worked extra jobs, you still have to declare this income on your taxes, for the sake of honesty. and prevention of audits.
Before submitting your tax return, read it again and make sure all the numbers are correct. It is possible that you have accidentally transposed some numbers or that you have incorrectly added them, and this simple mistake could trigger an alarm with the IRS.
2. You deduct charitable donations that you can not prove
There is nothing wrong with writing off your charitable donations if they are legitimate, but if you claim $ 15,000 in donations with a reported income of $ 30,000, that can only lead to alarm signals. You should only claim donations you have actually made – promises do not count – and only donations to qualifying organizations that are tax-exempt are tax deductible. Depending on the type of organization, you can write off donations up to 30% or 50% of your adjusted gross income – your earned income minus other tax deductions. Ask the organization to which you are donating if you are unsure of the amount you can legally write off.
Keep track of everything. You should have bank statements or credit card statements or canceled checks to document any money you have given, and you should have a written statement from the organization to which you have donated if the donation was $ 250 or more. If you donate property that may have fluctuated since you purchased it, complete Form 8283 with its current fair market value. Get an estimate if you think the items are worth $ 5,000 or more. You do not have to submit this paperwork with your taxes, but you will have to keep it in case of audit.
3. You deduct too much from self-employment expenses
As for charitable donations, there is nothing wrong with deducting home office expenses or a business trip if you are self employed. But many abuse these deductions and the government looks more closely at those who claim them. You can only claim legitimate business expenses. A dedicated office that you use exclusively or primarily for work is eligible, but working from time to time in your bedroom or living room does not make them home offices. The same rules apply to other professional expenses, such as supplies, travel or vehicle expenses. If they are not solely or primarily work-related, they are not considered tax deductions for the self-employed.
You will need records of all business expenses. This means keeping all receipts for office supplies, recording your driving for work and saving utility bills if you apply for a home office deduction. Even if you do that, it may not prevent the government from auditing you, but you can prove that your deductions are legitimate.
4. You round your numbers too much
Too many round figures can indicate that you are calculating your salary or the amount of your deductions. You may not have a problem rounding to the nearest dollar, but if you round to the nearest $ 10 or the nearest $ 100, the government may think you are trying to cheat with your taxes. If you are not sure of the exact cost of a deductible expense, it is better to check your receipts than to estimate. And remember, if you do not have proof of the expense, you can not deduct it at all.
Even if you follow all the rules, the government can always control you, but by avoiding these four mistakes, you can reduce those risks. If you have already filed your taxes and you notice an error, file an amended return with the correct information before the government asks you for an explanation.