The top 10 triggers of the IRS audit Make a lot of money. File a statement with mathematical errors. Do not submit or submit incomplete statements. Have a major change in your income or expenses.
You can't lie on your federal income taxes, because both you and the IRS received your W-2 and 1099 forms, both for full-time employees and self-employed individuals. However, those trying to defraud the IRS have used and abused this credit, so they will analyze anyone who has claimed this credit to exclude people who are moving houses or speculating on real estate. For that reason, they'll check to see if you stayed home for at least 36 months (three years), as needed. The IRS negligence penalty is 20% of the amount you underpaid in your taxes.
Learn your options to address it with the tax experts at H&R Block. Let's say you work as a sheep herder for Farmer Joe and make a little extra money writing articles for a sheep shearing publication independently. You may be tempted to submit only the W-2 form for your grazing job and keep the independent writing income listed on your 1099 form secret. A 1099 reports non-wage income derived from activities such as self-employment, stock dividends, and interest.
One type of 1099, the 1099-NEC, normally reports the amounts paid to independent contractors. Well, guess what? The IRS already knows the income listed in your 1099 because the publication sent you a copy, so it's only a matter of time before you discover your omission. This one is for the self-employed. If you're your own boss, you might be tempted to hide your income by stating personal expenses as business expenses.
But before you cancel your new ski boots, consider the suspicion that too many reported losses may result. The IRS may start to wonder how your business is staying afloat. The Home Office's deductions are riddled with fraud. It may be tempting to make undeserved deductions for expenses that don't technically qualify.
The IRS strictly defines the deduction by the Ministry of the Interior as reserved for people who use part of their home “exclusively and regularly” for their commerce or business. That means that a home office may qualify if you use it for work and only for work. Answering emails from time to time on your laptop in front of your 72-inch flat screen TV probably doesn't qualify your living room as deductible office space. Requesting a home office deduction may be more defensible if you have earmarked a portion of your home solely for business purposes.
Be honest when reporting expenses and measures. Property and accident insurance services offered through NerdWallet Insurance Services, Inc. OK9203 Property & accident licenses Old brokerage accounts are usually overlooked, as are 1099 forms and distributions from a college savings account to pay for tuition. The 4 main warning signs that trigger an IRS audit.
If your calculations are a little shaky, using good tax preparation software or a nearby tax preparer can help you avoid unfortunate mistakes that could lead to an IRS audit. Access to the Tax Practice Series (TPS) and Portfolio (TM) references on this page requires a subscription to Bloomberg Tax Research.