With the tax season knocking at the door, the thought of being audited by the IRS can seem daunting.
While the chances of being audited by the IRS in 2023 are relatively low, you must be aware of the red flags that could increase your chances of being audited as a medical professional. Whether it's failing to report all your income, claiming too many deductions, or reporting excessive business expenses, the IRS is on the lookout for any suspicious activity on your tax return.
In this blog, we'll deep dive into the five most common red flags that could get you audited by the IRS and provide tips on how to avoid them.
Getting Audited by IRS - Red Flags
Here are 5 red flags to be aware of to keep your tax season stress-free :
Failing to report all income: One of the most common red flags that could get you audited is failing to report all income. This could be income from freelance work, rental income, or income from a side business. The IRS receives copies of all the income you report on your tax return, so if you fail to report all of your income, the IRS will likely catch it.
Claiming too many deductions: Claiming too many deductions on your tax return could also raise a red flag with the IRS. While it's essential to take advantage of all the deductions you're entitled to, claiming too many deductions could indicate that you're trying to lower your tax liability artificially.
Claiming excessive business expenses: If you're a business owner, claiming excessive business expenses could also get you audited by the IRS. While it's important to deduct all legitimate business expenses, the IRS will closely scrutinize any expenses that seem excessive or unrelated to your business.
Filing a Schedule C: Filing a Schedule C could also raise a red flag with the IRS, especially if you're reporting losses year after year. The IRS may view this as a hobby rather than a legitimate business, and they may deny your deductions as a result.
Large charitable donations: Finally, if you make large charitable donations, this could also get you audited by the IRS. While it's commendable to give to charity, the IRS will scrutinize any donations that seem disproportionate to your income.
4 Reasons The IRS May Audit Your Tax Return
In addition to the red flags we've discussed, there are four primary reasons the IRS may audit your tax return:
Random selection: Sometimes, the IRS may select your tax return for audit at random.
Unreported income: As we mentioned earlier, failing to report all your income could get you audited by the IRS.
Unusually high deductions: Claiming unusually high deductions could also get you audited by the IRS.
Business expenses: Finally, the IRS may audit your tax return if you claim significant business expenses or have a Schedule C with losses year after year.
IRS Audit: How to Avoid It
While there's no surefire way to avoid being audited by the IRS, there are steps you can take to minimize your chances. Here are a few tips:
Keep accurate records: Accurate records of all your income and expenses will not only help you file your tax return accurately, but it will also help you in the event of an audit.
Hire a professional: Consider hiring tax professionals or medical tax accountants to help you file your tax return. At PRIME Financial Services, our team of tax professionals can help ensure that you're taking advantage of all the deductions you're entitled to while minimizing your chances of being audited. To know more, contact us here.
Be honest: Finally, the best way to avoid being audited by the IRS is, to be honest on your tax return. Don't try to hide income or claim deductions that you're not entitled to. If you're unsure about something, consult with a tax professional.
Wrapping Up
In conclusion, being audited by the IRS can be a stressful and time-consuming process. But by being aware of the red flags that could get you audited and taking steps to avoid them, you can minimize your chances of being audited.
At PRIME Financial Services, our team of tax professionals can help ensure that you're taking advantage of all the deductions you're entitled to while minimizing your chances of being audited.
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