We provide tax services to individuals and business entities, such as C Corporation, S Corporation, Limited Liability Companies, Limited Partnership, General Partnership, etc.
We can also represent you if you have tax problems such as an IRS audit. Our law firm has CPAs and Tax Attorneys that can help you reduce your tax liabilities.
Generally, the IRS only audits about 1% of all individual tax returns annually. Certain factors can increase your audit risk such as omitting income, making math errors, and certain credits. Here is a list of 10 “red flags” that draw attention to your tax return and increase your risk of audit.
1. Failing to report all taxable income. The IRS receives copies of all your W-2s and 1099s. You may not care about reporting a few dollars of bank interest from the 1099-INT but the IRS does. A mismatch increases your audit risk.
2. Claiming large charitable deductions. If you claim charitable deductions that are disproportionate to your income, this raises a red flag. You need to retain receipts for your cash and property contributions. If your donate more than $500 of property, you must have an appraisal.
3. Home office deduction. The IRS is interested in this deduction because most people that claim a home office do not meet all the requirements in order to claim this deduction. Among other requirements, the home office must be used exclusively and on a regular basis as your principal place of business.
4. Business meals, travel, and entertainment. The IRS knows that self-employed people tend to claim excessive deductions.
5. Cash business. Small business owners who primarily receive cash are less likely to accurately report all their income.
6. Failure to report a foreign bank account. The IRS is very interest in people with overseas accounts. Failure to report a foreign bank account can lead to significant penalties. The IRS has made this one of their top priorities.
7. Math errors. This is one of the biggest reasons taxpayers receive a letter from the IRS. If you make an error in your favor, you will get a letter from the IRS and there is a greater risk you will be audited.
8. Engaging in large currency transactions. The IRS gets reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious activity reports from banks.
9. Claiming 100% business use of your car. 100% business use is rare and raises a red flag for the IRS. You should maintain mileage logs as wells as calendar entries for the purpose of every trip.
10. Using round numbers. If most of deductions are round number like $500 or $1,000, then those look like estimates. Too many round numbers on your tax return will raise a red flag.
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