My name’s Daniel Cotts, and as a licensed Tax Attorney, I’ve seen firsthand the fear and anxiety of receiving a letter from the IRS. At Cotts Law, we understand the stress that an IRS Tax audit can bring. If the IRS is pursuing you for back taxes or unfiled tax returns, we can help get the IRS off your back and out of your life for good.
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Inconsistent Reporting
One of the biggest triggers for an IRS Tax audit is inconsistent reporting. The IRS receives information from all your employers and contractors, including W-2s and 1099s. If the income you report doesn’t match what the IRS has, it raises eyebrows and can lead to an IRS audit. To avoid this, ensure that all your records and income sources are accurately reported. Keep meticulous records of all your earnings and make sure they align with what the IRS receives from third parties.
Additional Income Sources
If you have other ways of making money, such as rental properties or a side business, be extra vigilant in your reporting. These income streams can complicate your tax return, and any discrepancies can easily catch the IRS’s attention and trigger an IRS Tax audit.
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Excessive Deductions
While deductions are a normal part of tax returns, taking excessive deductions can make the IRS suspicious and result in an IRS audit. Every deduction must be justified and supported by appropriate documentation. Ensure you have invoices, receipts, and other proof to substantiate your claimed expenses, especially if they are high compared to your income level.
Justification Of Expenses
Keeping detailed records of all your deductions is crucial. This includes maintaining receipts for charitable donations, business expenses, and any other deductible items. The IRS looks closely at high deductions, so be prepared to provide evidence that justifies these claims and avoids an IRS Tax audit.
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Self-Employment Scrutiny
Being self-employed can be rewarding, but it also comes with increased scrutiny from the IRS. Self-employed individuals often have more opportunities to claim deductions, which the IRS monitors closely. To avoid issues and an IRS audit, maintain meticulous records of your earnings and expenses. Honesty and accuracy in your reporting are your best defenses against an IRS Tax audit.
Detailed Record-Keeping
For self-employed individuals, keeping detailed records of all business transactions is essential. This includes maintaining logs of business miles driven, keeping receipts for business-related purchases, and recording all income accurately. The more thorough your records, the less likely you are to face issues during an IRS Tax audit.
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Large Cash Transactions
Large cash transactions can raise IRS red flags. While dealing with cash is legal, significant or inconsistent cash transactions can prompt an IRS audit. If you regularly handle large amounts of money, it’s vital to keep thorough records of all inflows and outflows to avoid an IRS Tax audit.
Documenting Cash Transactions
Make sure to document all cash transactions meticulously. This includes keeping logs of cash received and spent, noting the purpose of each transaction, and ensuring that these transactions align with your reported income. Proper documentation can help prevent an IRS audit.
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Personal vs. Business Expenses
Another common IRS red flag is the blurring of personal and business expenses. Using personal expenses as business expenses can lead to an IRS audit. To avoid an IRS tax audit, it’s important to keep personal and business expenses separate and deduct only legitimate business expenses.
Clear Separation of Expenses
To avoid issues:
- Maintain separate bank accounts for personal and business expenses.
- Keep records of business expenses and ensure that they are truly business-related.
- Avoid the temptation to mix personal spending with business deductions, as this can lead to an IRS audit.
Conclusion
Navigating the difficulty of tax reporting can be challenging, but with careful record-keeping and honest reporting, you can minimize the risk of an IRS Tax audit. If you have any questions or need assistance, Cotts Law is here to help. We specialize in getting the IRS off your back and out of your life.
Contact Cotts Law today to start building your defense against the IRS. No matter where you’re located across the U.S., we can provide the guidance and support you need to avoid an IRS audit. Visit our website to schedule a meeting, and let’s work together to resolve your IRS issues for good.
