Tax time is beyond us! But the fear of an audit, never is. Worried your return could be chosen for an audit? According to the IRS, it can audit your previous returns for any reason up to three years after the return is filed. However, if you don’t file at all or if fraud is involved, there is no statute of limitations for an IRS audit. Because of this, it is recommended to keep all tax information and records for at least a period of 10 years.
Want to avoid an audit? According to Sara Gould, CPA at Deming, Malone, Livesay and Ostroff, here are four IRS no-nos that might prompt an unwanted audit:
Doesn’t Add Up. “What you provide to the IRS and what a third party provides better match up,” says Gould. “If not, the system will generate a notice that might prompt an audit.” For example, if you failed to report a 1099 that the other party reported, this could generate a mis-match of information. Likewise, if a bank or investment company sends the IRS information that you fail to include in your return, this could prompt questions.
Abnormal Deductions. Excessive deductions in relation to your income will trigger a question mark with the IRS that Gould says, “Isn’t worth it.” Consider your deductions carefully and don’t exaggerate. In addition, make sure you have documentation to uphold your deductions. This includes receipts, travel logs for mileage, credit card or bank statements, and other documentation you believe supports your deduction expenses.
Child Deductions. Divorced families should be aware and decide who will claim the child as a dependent and take the appropriate deductions and credits. For separated parents, only one parent can claim the child as a dependant. With the use of social security numbers, the IRS is able to check this information.
Social Networks. Be careful how much private information you divulge on social websites such as Facebook and Twitter. IRS agents are now using these websites as a way to research and locate tax evaders. As an example, if you do freelance work such as selling artwork or performing as a musician and you do not claim the income you make from these activities to the IRS, it could trigger an unwanted audit.
This is a weekly featured post on Own The Dollar from Sara Peak, a Certified Financial Planner and a veteran of the finance industry. In addition to her monthly “Money Matters” column in Kentucky Living magazine, she also writes about money and personal finance topics on her blog.
Be sure to look for more great featured articles every week from Sara. If you have a question or topic that you would like for her to discuss, please contact us.