Red Flags Increasing the Audit Risk for Your 2021 Return
An IRS audit is a review/examination of taxpayers’ accounts and financial information to verify information is reported correctly and that the reported tax is correct. Generally, the IRS can audit returns filed the last three years, or longer in some cases. At Maicher CPA Pllc, we prepare tax returns designed to minimize taxes and your audit risk and related expense. Unfortunately, the IRS recently added 2,500 auditors, possibly signaling more audits for 2021 returns. However, at Maicher, we identify audit red flags and likely ways to resolve them. Below are several examples:
- Major Changes in Income or Deductions Compared to the Prior Year. These changes increase audit risk. The risk can be reduced by documenting why these changes occurred, such as disability, lawsuits or a major industry changes.
- You Are Claiming Home Office Expenses. For the growing number of taxpayers working at home, the home office deduction is often beneficial because the related rent/ mortgage, utilities, and other expenses are deductible, provided your home office is regularly and exclusively used for business. Thus, others must not use your home office and its square footage must be accurately measured.
- Large Charitable Donations. Large charitable donations are a red flag with “large” meaning donations disproportionate relative to past donations or gross income. Always document the deduction (e.g. retain the canceled check) and other types of proof may be required depending on the donation size and form.
- Consistently Not Showing Taxable Income. Reporting a loss in more than a few years often gets IRS attention because it raises questions about how your living expenses are paid. Show some income at least occasionally and pay some tax.
- Other Miscellaneous Red Flags. Figures not adding up can trigger an audit. To reduce errors, we use software and the skills of our tax professionals to best ensure your numbers add up. Similarly, all social security numbers must be correct, including a dependent child’s SSN. Lastly, paperwork must conform, including your federal and state returns, along with your Form 1040 and your W-2/1099.
- Avoid Late Filings. Last but not least, filing late can trigger an audit. We makes it easy to timely file your tax return by using e-file to avoid this trap.
Take-away: Audit risk can be minimized by our decades of experience and skill. Call Maicher today for an appointment to get your 2021 returns completed and filed timely.
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