As a tax preparer, it’s crucial to recognize scenarios commonly triggering IRS audits. Ensuring accurate and honest reporting with thorough documentation is key to avoiding issues. Failing to report all income, such as neglecting to include 1099 forms from freelance work or stock dividends, is a major red flag. The IRS cross-references these forms, so discrepancies will be caught. Simple accounting errors like transposed numbers or missing zeros can also draw attention, making it essential to double-check all figures.
Excessive business deductions and losses are other areas of concern. While legitimate business expenses are deductible, they must be well-documented and clearly related to the business. Similarly, if a business shows frequent or significant losses, the IRS may scrutinize the returns more closely, requiring proof that these losses are genuine. Rounding up numbers instead of reporting exact amounts can also lead to issues, such as claiming excessive charitable donations without proper documentation. Lastly, home office deductions must be legitimate, with the space exclusively used for business purposes. By carefully managing these areas, you can help your clients avoid the red flags that could lead to an audit.
source: https://ultimatetax.com/blog/what-are-common-triggers-for-an-irs-audit/
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