Is one of your clients about to get audited by the IRS? Have you ever wondered why some tax returns are audited, while others aren’t?
The IRS doesn’t have enough personnel and resources to examine every tax return, so they rely on a variety of systems to target the returns that will generate the most revenue per hour for an auditor’s time.
Here are several common miscues that may get one of your clients audited:
Miscue #1: Your Client’s Tax Return Doesn’t Match Reports Sent to the IRS
The number one reason one of your clients may be called into an audit is because the amounts reported on their tax return do not match with the information the IRS receives. Not only must the amount match, it must match to the proper form and line number of the form.
Miscue #2: Not Showing Enough Income On Your Client’s Tax Return
The IRS is auditing people for not making enough money! Many self-employed people are being audited because the IRS believes they reported too little on their tax return. For example, your client may be called into an IRS audit because they reported $30,000 of income for their business. IRS data, based on your client’s occupation, deductions, zip code, and family size, determined they need at least $49,000 to pay their bills. Therefore, your client must have unreported income. Your client will now be forced to battle with the IRS because they believe your client is lying.
Miscue #3: Reporting Cancellation Of Debt Income Incorrectly
If your client owes a debt and it is forgiven, the canceled amount may be reportable as income. This is a complex area of the Tax Code, especially when it applies to real estate, but there are a few exceptions to it being taxable. Many of the 1099s reporting the information are also incorrect. Most people don’t know how to sort through the mess and fix the problem, thereby increasing their odds of an audit.