- There are certain red flags on tax returns that can increase the likelihood of an audit.
- Avoiding these blunders could spare your return from further scrutiny.
Be careful when filing your taxes. You don't want the IRS to dig deeper.
If you've ever seen a tax audit play out on TV or in the movies, it can come across as a scary occurrence. But let's get one thing straight -- most tax audits don't involve an IRS agent ransacking your home office in search of evidence of tax fraud. Often, audits result from innocent mistakes and are dealt with by sending information back and forth by mail.
Also, getting your tax return audited doesn't automatically mean you'll wind up in jail or get slapped with massive fines. In some cases, you may not owe the IRS a penny more.
But still, an audit may be something you're aiming to avoid. If you'd rather not subject your tax return to added scrutiny, then be sure to steer clear of these mistakes when you file it.
1. Failing to report all of your income
These days, a lot of people are taking on side hustles and getting paid on a freelance basis. If you earned that type of income in 2021, you need to report it on your upcoming tax return. If you don't, and the IRS finds out about it, you could easily get audited.
If you earn $600 or more from a single company, you should get a 1099 form in the mail summarizing that income. But even if you don't get that 1099, you still have to report your earnings.
Plus, if you earned interest in a savings account or were paid dividends in an investment account that isn't an IRA or 401(k), you need to report that income as well. Banks and financial institutions are generally good about reporting that information to the IRS, so you'll want to make sure the details you report match what the IRS has on file.
2. Using round-number deductions that are just estimates
The simple act of taking deductions on your tax return won't necessarily trigger an audit. But if those deductions look too clean to be true, the IRS might choose to dig in.
Say you're taking a deduction for medical expenses. If you list your expenses as $10,000, the IRS might question how your bills magically came to such a round figure. It pays to actually add up your receipts and claim the $9,992 you racked up instead.
3. Claiming 100% business use of a vehicle
If you use your car for work -- say, you're a freelance journalist who drives to meet people for interviews -- you're allowed to claim a deduction for its cost and maintenance on your taxes. But one thing you shouldn't do is claim 100% business use of your car. Chances are, you use your car for some non-work purposes, and if you claim you use it solely for business and nothing else, the IRS might take a closer look.
Getting your taxes audited isn't necessarily the nightmare you might expect. But it definitely doesn't hurt to do what you can to avoid an audit -- and that means making sure you don't fall victim to these mistakes.
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