How Not To Get Audited

This is a BattlePlan Virtual, finance content marketing and “how-not-to” sample. It was First shared via Terri Bell and Associates, IN THE BLACK Newsletter, Volume 1, Issue 3.

How NOT To Get AUDITED

[….and what to do if you happen to get flagged….]

Six Things that Could Flag Your Tax Return for an Audit

You mav be audited if you fall into one of these 6 categories:

1. You itemize your deductions

Itemizing your deductions can mean you are a high-earning individual.

Most people, about 94%, do not itemize because they do not have more deductions than the Standard Deduction. The Standard Deduction for a single person is $12,550 in 2022.

Itemizing requires more calculations and is more complicated than using the standard deduction, which can lead to more auditable errors.

2. You’re self-employed and file a Schedule C.

Schedule C filers are audited more than your regular W-2 employee. There are more deductions to take advantage of and more chances that your income may be understated, particularly businesses whose receipts are primarily cash. If your deductions or income is not in line with what a business of your type, size and location, you could trigger an audit.

3. You have assets in another country.

Some taxpayers think if they stash money overseas, they can dodge paying taxes on that money. The IRS is well-aware of this strategy. This and may cause the IRS to audit your return to make sure that you have paid taxes on the overseas bank accounts.

4. You report no or low income but your lifestyle suggests otherwise.

For example, you are single, live in gated community, drive a $150,000 Mercedes Benz and your net income from your business was $30,000. Something is wrong with this picture. Unless you can produce the winning lottery ticket or trust fund account, the IRS wants to know where the money is coming from to fund your lifestyle.

5. You’re a millionaire.

People who make $1 million or more a year are audited at higher rates than those with lower incomes. Those with incomes of $10 million or more are often the most frequently audited. It boils down to the IRS prioritizing higher income taxpayers because the outcome of the audit yields much higher returns vs. “just trying to trap the little guy”.

6. You receive Earned Income Credit or Child Tax Credits.

The IRS has credits for low-income, working individuals with children if you qualify. However, if you take advantage of these credits and do not qualify, you may be audited and required to return the money plus penalties and interest. One of the ways taxpayers do this is by claiming children that they do not support .

If You Are Audited 

Be honest and respond to all inquiries as quickly as possible. Don’t be afraid to show all of your documentation. If possible, have a qualified accountant and/or tax attorney represent you.

• Be honest and accurate 
• Be sure your sums tally with any reported income, earned or unearned—remember, a copy of your earnings is being furnished to the IRS, as the forms state
• Be sure to document your deductions and donations fully and accurately so that they can withstand scrutiny.