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Why might the IRS send an audit notice?

On Behalf of | May 21, 2023 | Tax |

If the IRS has questions or concerns about a tax return, it will send you an audit notice. An audit may occur by mail, at an IRS office located near your Texas home or at your home or business. While there is no guarantee that a return will be selected for examination, certain actions may increase your risk that this occurs.

Figures are incorrect

The risk of a tax audit may increase drastically if you fail to disclose all of your income. In addition to wages from your employer, you may have income from the sale of stock, royalties or other sources. Even if you made an honest mistake, you could be assessed penalties and interest on top of any taxes owed on additional income discovered during the audit process. Even if you do report all of your income, you could get in trouble for deducting expenses related to a hobby as opposed to a business.

You tried to round up

It’s rare that you will buy a computer for exactly $500 or pay a business consultant exactly $1,000 for services rendered. Therefore, it’s important to put the exact amount that you paid for an item or service when claiming a deduction on your tax return. Otherwise, the IRS may doubt the validity of the deduction and disallow it. It’s also possible that the federal tax agency will perceive your actions as an attempt to defraud the government.

If you receive an audit notice, it doesn’t necessarily mean that you made an error. In fact, it’s possible that the government will determine that you’re entitled to a larger refund. Receipts, bank statements and other information may be used to verify that you are entitled to a deduction or credit or that you accurately reported your income.