Red Flags That Could Trigger a Tax Audit
What is an IRS audit?
The IRS may choose to review a taxpayer’s accounts and financial information to ensure all tax laws are being followed. Even though the IRS only audited 0.4% of individual income tax returns in 2019, many taxpayers live in fear of a letter from the IRS questioning items on their return. “Taxpayers worried about the possibility of facing an IRS audit may hesitate to claim all the tax breaks they are entitled to claim,” says Kathy Pickering, chief tax officer at H&R Block. “When they do this, they are leaving their money on the table.”
The IRS generally has up to three years after the tax-filing deadline to initiate an audit, or up to six years if you omit 25% or more of your income. “If you are entitled to deductions or losses and you have adequate documentation to support these expenses, a taxpayer shouldn’t fear an audit, even though it might be stressful,” says Mitchell Freedman, a CPA in Westlake Village, California. Here are some common red flags that can trigger a tax audit and what you can do to avoid problems with the IRS.
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