8 Tax Audit red flags from the IRS

AUDIT RED FLAGS OF THE IRS WHILE THE CHANCES THAT YOUR RETURN WILL BE CHOSEN FOR AN AUDIT ARE SLIM, YOU NEVER KNOW WHEN YOU WILL BE ONE ON THE IRS HIT LIST. HERE ARE 6 RELATIVELY EASY WAYS TO STEER CLEAR OF AN AUDIT:

REPORT EVERY PENNY

EARNED

Most employee wages or salaries are reported on W-2 forms, while other income like interest, dividends and capital gains are reported on 1099s, as is income earned by independent contractors or freelancers. Those forms are sent to both you and the IRS. So be sure to include all information from them on your federal tax return.

RUN A SMALL BUSINESS? SHOW IT.

The IRS understands that very few people make a profit when they first start their own business. However, there is a limit to how long you can stress their understanding. If you report losses for three or more years out of the last five, then agency will start to suspect your business is more of a hobby than a venture aimed at turning a profit.

IF ANYTHING LOOKS STRANGE, EXPLAIN IT.

The IRS is on the lookout for unreported income, so if something looks strange or questionable on your tax return, they may want to investigate further with an audit. For example, if your income is too low to live on given where you live and your family size, include a disclosure statement detailing how you supported yourself, including any savings, loans or credit cards that you used to pay the bills.

WATCH OUT FOR THE HOME OFFICE DEDUCTIONS!

Generally your office is at one place – it may a rental space or in your home.

So don't report a deduction for both. If you legitimately have offices in both places, explain why in a disclosure statement. Remember, the home office deduction can only be used for space in your home used exclusively for conducting business.

BE HONEST ABOUT ANY MONEY ABROAD

U.S. taxpayers who have any income earned in bank accounts or investment accounts abroad must report it to the IRS. While that's always been the case, under the relatively new Foreign Account Tax Compliance Act (FATCA) your foreign financial institution may soon start to report that information to the IRS like any other bank or brokerage would in the United States.

REPORT THE SALE OF PROPERTY

When you sell your home, the title company will send you and the IRS a 1099-S form, recording the proceeds from the sale. Even if all your capital gains on the sale are tax-exempt (because they didn't exceed $250,000 if you're single or $500,000 if you're married), it is recommended that you report information from that 1099-S on your return anyway.

To Learn More Visit www.taxdefensenetwork.com Or Call (800) 691-5390

Source: Sahadi, Jeanne. “8 Tax Audit Red Flags.” CNN Money. Cable News Network, 25 February 2015. Web. 16 September 2015. <http://money.cnn.com/2015/02/24/pf/taxes/tax-auditred-flags/index.html>