Tax season IRS audit flags can get you into alot of trouble with the IRS, and make tax season worse, by making you spend additional time dealing with an audit. Filing taxes can be complicated, but a simple mistake or slight exaggeration cold warrant an audit form the Internal Revenue Service. Here’s how someone is chosen for an audit. An IRS software program may randomly select the taxpayer and compare the return to other similar returns to detect any anomalies, or the taxpayer in question may be linked to a family member or business partner who is being audited.
The IRS can audit returns up to three years old. Inaccuracies could lead to penalty charges: 20% of the disallowed amount for filing an “erroneous claim for a refund or credit,” the IRS stated, or $5,000 if the tax return was deemed “frivolous”, where there isn’t enough information to assess correct or incorrect information. In more serious cases, taxpayers could also be brought to trial and face criminal charges of tax evasion or fraud. So yes, tax season IRS audit flags can get you into trouble.
And now for the good news: The IRS audited less than 1% of returns in 2017, and that number was expected to be lower last year, said Joy Taylor, tax expert at personal finance site Kiplinger. Does that mean you should be carefree about filing ? Absolutely not. Here are red flags tax experts say you should avoid. Turning into the most generous person in America. One of the most common reasons for an audit is when the taxpayer is taking higher than average deductions in relation to his income.
Claiming a loss from your hobby. This is for all the die hustlers. Know the difference between a business and a hobby. The IRS allows hobby deductions for expenses, up to the amount of income generated by that hobby.
Withdrawing from a retirement account early. There are some scenarios where an individual is allowed to take withdrawals from a retirement account prior to 59 and and half years old. But the IRS charges a 10% penalty if you don’t do it right.