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Red Flags That Could Lead to a Tax Audit

Zuckerman Law, LLC Sept. 30, 2022

Audit And Fraud InvestigationAccording to statistics from the Internal Revenue Service Compliance Activities report, the IRS closed about 738,959 tax returns examinations in the Fiscal Year 2021. Tax audits are often necessary to detect mistakes, identify tax fraud, and determine whether taxpayers report their income, credits, and expenses correctly. The audit may be conducted randomly or based on suspicious activity. An experienced Florida tax law attorney can enlighten you about the red flags that could lead to a tax audit. 

At Zuckerman Law, LLC, I have the knowledge and diligence to assist and guide clients in various tax-related matters. As your legal counsel, I can guide you through the tax filing process and provide you with insightful tips to avoid a tax audit. My firm is proud to serve clients in Fort Lauderdale, Florida, and surrounding areas throughout South Florida, including Miami, Boca Raton, Sunny Isles, and Hollywood. 

Top IRS Red Flags for an Audit 

An IRS audit involves a comprehensive review of your tax returns to ensure that all information provided is accurate. While the tax authorities randomly select some taxpayers for audit, others may be triggered by some anomalies. Here are some red flags that may possibly trigger an IRS audit: 

You Overlooked Income 

When filing your tax return, you are expected to report all of your taxable income. Overlooked or unreported income may result in more scrutiny by the tax authorities. 

You Earn a Lot 

Additionally, the higher your income, the higher the chances of a tax audit. Hence, if you're a wealthy person or if your business makes a lot of money, the IRS may take a keen interest in your tax returns. 

You Claimed Many Itemized Deductions 

Claiming many itemized deductions might trigger the curiosity of the IRS. If the credits, losses, or deductions reported on your tax return are unreasonably more than your income, you can expect the tax authorities to audit your returns. 

You're Self-Employed 

Individuals who are self-employed or business owners (sole proprietors) report their income or losses using Schedule C (Form 1040). From experience, IRS agents believe that self-employed people tend to avoid reporting all their income or claim additional deductions. Hence, if you're self-employed, you can expect the tax authorities to have another look at your tax returns. 

You Engage in Cash Transactions 

The Internal Revenue Service often receives reports of cash transactions of $10,000 or more involving casinos, jewelry stores, banks, pawn shops, car dealers, and other businesses. If you engage in cash transactions involving huge amounts, the IRS will likely scrutinize your returns. 

You Lose Money Consistently 

Reporting that your company loses money consistently is ideal. If your business tax filings don't indicate profit over the past few years, the IRS may examine your tax returns. 

You Claim More Charitable Donations     

When filing your taxes, you are allowed to deduct charitable contributions of funds or assets made to qualified organizations. However, if you claim more charitable donations as deductions than your taxable income, you can anticipate scrutiny from the IRS. 

Tips to Avoid a Tax Audit 

As mentioned earlier, there are some anomalies from taxpayers that may possibly trigger an IRS audit. Here are some insightful tips to help you avoid a tax audit: 

  • Report your income accurately. 

  • Ensure that your crosscheck your math before filing your tax return. 

  • Avoid unusual patterns in your report. 

  • Document and report all cash transactions. 

  • Crosscheck your Social Security number and other personal information. 

  • Obtain, complete, and submit all necessary tax forms. 

  • Always choose your credits and deductions wisely. 

  • Always enter the exact figures and avoid guessing your numbers. 

  • If you notice an error after filing your return, fix it. 

  • Lastly, reach out to a tax attorney to help prepare your taxes and represent you in other matters involving the IRS. 

An experienced Florida tax return attorney can help you prepare and file your tax returns, ensure that all information is accurate, and take adequate precautions to avoid a potential tax audit. 

How Zuckerman Law, LLC Can Help  

Preparing and filing local, state, or federal taxes usually involves several complex and time-consuming processes. Nevertheless, you need to be as accurate as possible to avoid potential penalties or the possibility of an IRS audit. Therefore, when filing your taxes, consulting with an experienced tax attorney is imperative for proper guidance and to navigate crucial decisions. 

At Zuckerman Law, LLC, I have devoted my career to guiding individuals and businesses through the complexities of filing tax returns. Using my extensive knowledge, I will help prepare your taxes carefully and ensure that all reported income, credits, and expenses are accurate. Even if you have received a notice of an IRS audit, I can enlighten you about what to expect and offer you the effective representation you need to navigate the complicated tax audit processes. 

Contact my firm – Zuckerman Law, LLC – today to schedule a simple consultation with a trusted tax attorney. I can offer you the reliable advocacy and personalized legal guidance you need to navigate key decisions. My firm is proud to serve clients in Fort Lauderdale, Florida, and surrounding areas throughout South Florida, including Miami, Boca Raton, Sunny Isles, North Miami Beach, and Hollywood.