If you’ve never been audited by the IRS, consider yourself fortunate. Even if you’ve done nothing wrong and your tax return filings have all been done properly, going through an audit by the Internal Revenue Service can be grueling. That’s one reason why our Elgin accountants work closely with both individuals and companies to ensure that potential triggers are avoided and the paperwork is done correctly and filed in a timely manner. But even with the best possible preparation, you may be subjected to an audit at some point because something on your return triggered the government’s curiosity.
Common Audit Triggers
The IRS reviews millions of returns every year looking for signs that an individual or company may be inaccurately reporting income or taking advantage of loopholes. The following are a few common red flags they look for.
If your income suddenly jumps up or your salary passes the $250,000 mark, the IRS will take notice and is more likely to scrutinize your return carefully, particularly if there was a dramatic upturn in your income versus previous years.
Income That Isn’t Salaried
If you are paid basic wages or earn a salary, chances are you won’t be investigated as long as you have the appropriate W-2s filed with your return, but income that comes from freelance or contract work will be scrutinized, so be sure you have all the necessary 1099’s and that you’ve paid the appropriate quarterly taxes.
Questionable Itemized Deductions
If you operate a home business, there are plenty of acceptable deductions you can take, but if your deductions seem high in comparison to your profits, it’s a red flag. Be sure you don’t overstate how much of your house is used solely as a home office and don’t deduct excessive amounts for meals and entertainment. Another deduction that is often questioned is excessive use of a car for business purposes. Talk to Dugan & Lopatka‘s accountants in the Elgin area to determine what the appropriate deduction guidelines are for deducting items like a home office or an automobile you use for business.
Investment Income That’s Not Accounted For
If you receive a 1099 listing how much you made from your investments or even from winning at the casino, you can be sure that the government received the same information. If you forget to report that income, the IRS will be happy to remind you. It’s better to be up front in the first place.
Large Charitable Donations
If you donate anything over $250 to a charity, you’ll need to produce a cancelled check or a dated, signed receipt if you are audited. The higher your charitable donations, particularly relative to your income, the higher your odds of being audited. Non-cash contributions in general are suspect, particularly if they are valued at more than $5000, so be sure you have the item appraised by a professional before donating it.
Healthcare or medical expenses can be deducted only if they are equal to or greater than 10% of your gross income. If you do have high medical expenses, make sure you keep copies of every receipt, every bill and any other documentation of what you’ve spent. Over-the-counter medications and health club fees are just a few of the items that can’t be included in your deductions, so be sure you confer with one of our accountants in Elgin if you’re considering deducting medical expenses. We can determine what can and can’t be included.
Our Accountants In Elgin Can Help You During An Audit
If you’re worried about the possibility of an audit, it may be time to talk to one of our Elgin accountants at Dugan & Lopatka. Just fill out our simple contact page and one of our accountants will call you.