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5 IRS Red Flags That Can Help you Avoid An IRS Audit

27th March 2009
By James Trippon in Taxes
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The recent economic stimulus bailouts, declining economy and growing deficit will only increase the IRS' desire to impose an IRS income tax audit. Rest assured that the IRS is going to do everything it can to collect as many tax dollars that they are owed. The Internal Revenue Service projects that there is a $400 billion difference between the amount that is owed by individual tax payers and what is actually collected by the IRS. This growing tax balance will only bring more thorough examinations of individual's income tax returns and increase the number of IRS audits each year.

In the 25 plus years of experience in processing income tax returns, J.M. Trippon & Company CPA's has processed over 10,000 federal income tax returns. If anyone can say that they know how to avoid an IRS, we definitely can. We even have created an Audit Protection Plan, offering representation to our clients in the event they face an IRS audit. To learn more about our Audit Protection Plan, contact us at 713-661-1040. The IRS does not publish their checklist of standards on auditing income tax returns, but there are issues that you can avoid to reduce the risk of chancing a lengthy, and potentially costly IRS Audit.

The More Money You Make, The More Likely You Are To Experience An IRS Audit Most Americans would love to have to worry about, but it seems like the more money you make increases the chances of you experiencing an IRS audit. The more money you make signals the IRS for two different reasons. The first is that the more money you earn, the more your income tax reporting error generally means that there is more money to be collected by the IRS. Secondly, the higher your income, the more likely you are to own a business, multiple homes or rental investment property, investment portfolios, and additional taxable income. The IRS thinks that the more complex the income tax return, the more likely there is to be a mistake.

Although making more income is an IRS audit waiting to happen, most people are happy to risk an IRS audit for the income level.

Home-based Office Tax Deductions
Home-based businesses, whether your primary income or a part-time job, are likely targets for IRS audits. If you own a home-based business, you definitely need to fill out the Tax Evaluation Questionnaire from J.M. Trippon & Company CPA's. It is completely legal to take self-employment tax deductions. The key to avoid an IRS audit is to only claim deductions on legitimate and well documents expenses. We cannot over-emphasize the need to keep accurate tax records, receipts, and document anything that is going to be considered a tax deduction. The better you document your business expenses, the easier the claim is to justify during an IRS audit. It is very tempting to deduct those questionable expenses to reduce your tax liability, but resist the temptation. Facing an IRS audit is not worth it.

An Important Note To Home Based Business Owners - - - When using your residence as a deduction, remember to be conservative in your estimation, have your claim well documented, and be ready to answer questions in an IRS audit.

Charitable Donations
The standard for charitable contribution deductions has been that you can deduct up to $500 without documentation. However, with the recent changes in the tax law, this is not longer true. The IRS has begun to require official documentation from the charitable organization which received the donation, or from the financial institution that funded your contribution from your account. As with any tax deduction, you should have the proper documentation in the event you face an IRS audit.

Another important note for charitable contributions is that if you're making a non-cash donation of property (such as a car) and the value is over $5,000, you're required to have an appraisal done on the property to back-up your claim.

Unusually High Expenses
Deducting excessively high expenses are another red flag that could throw up warning signs to a IRS auditor. If anything seems out of the ordinary or excessive, the IRS will feel it necessary to investigate. In the event that you have any unusual expenses or excessive deductions, it is always a good idea to send an explanation along with your income tax return to avoid suspicion and reduce the potential of an IRS audit.

Filing a Sloppy Return
Filing an incomplete or illegible return draws attention and is a warning sign to the IRS. A neatly organized and computer generated income tax return reduces the suspicion and need to investigate the return by an IRS auditor. At Trippon and Company CPAs, we have the most technologically advanced federal income tax preparation software to organize your income tax return so it is presented in a professional and organized manner.

At J.M. Trippon and Company CPA's, we do our very best to eliminate IRS audits of our clients. We operate on the straight and narrow and never enter into the "grey areas" of income tax preparation. Give us a call to schedule your complimentary tax evaluation at 713-661-1040.
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