Big Bank Account Could Mean Big IRS Scrutiny
The 2012 tax filing season is well over! The IRS released their 2012 Data Book and, as reported by AccoutingToday, they reviewed about 1% of all tax returns filed in fiscal year 2012, or about 337,477 returns. Of the returns examined, about 12.1% reported income over $1 million or more. Only 2.8% of returns were reviewed with income reported of at least $200,000 and under $1 million.
It appears a large income triggered audit red flags this year. As you prepare to stay organized for next year (yes! plan early and stay organized for next year) here are a few more things that might raise red audit flags as reported by Investment News:
- Failure to report all taxable income. IRS computers match your W-2s and 1099s to what you report on tax returns; if they vary, you may come under scrutiny.
- Unusually large charitable contributions. If your charitable deductions are disproportionate to your income, you may raise a red flag. Also, if you’re going to make charitable contributions, make sure to dot your I’s and cross your T’s so you don’t lose the deduction on a paperwork technicality! (link to previous blog)
- Improperly claiming deductions such as the home office deduction. Just because you have a room in your house with a desk and a computer doesn’t mean you qualify for the home office deduction. (link to previous post)
- Outrageous travel and entertainment expense write-offs. Be especially careful and make sure you have the appropriate documentation in case you’re audited.
- Running a cash business. Since people who run cash businesses (such as a car wash or nail salon) are notorious for under reporting, or even simply not reporting, income, as these businesses tend to come under more scrutiny.