Recently, you received a notice from the IRS about an audit. You thought you followed the latest tax laws, but apparently, you missed something. Where did you slip up?
Kiplinger shares various situations that may trigger an IRS audit. See what sent up a red flag to help you develop a strategy.
Not reporting all taxable income
Did you start a gig job or earn income outside your regular job? If so, you must report all taxable income. The IRS receives copies of your W-2s and 1099s, so they know how much you make and how much you should report on your taxes. Even if you do not receive a tax form before receiving income, you must still report the money you make.
Taking higher losses, deductions or credits
All credits, deductions and losses you claim on your taxes should match your income. Before claiming anything, double-check that you have the right paperwork to support your credit, loss or deduction.
Accepting large charitable deductions
You want to help those in need, so you donate to charity. The IRS may want to audit you if your charitable deductions do not align with your income. Taxpayers in specific tax brackets usually make specific charitable donations. If your donation does not match the standard for your income level, the IRS may want to investigate.
Using a hobby as a write-off
If you have several sources of income and report losses from an activity that reads more like a hobby, the IRS could see red flags when you report those losses on Form 1040’s Schedule C. To fly under the radar, you must operate an activity much like you would a business from which you expect to make money.
With a financial professional’s help, you may navigate a tax audit or avoid one.