Real Estate Rentals

Individuals that earn a lot of money are more likely to face an audit. The tax returns of millionaires are often complicated, which causes the IRS to look more closely. Of course, you don’t want to avoid earning money just so you are not audited, but it is important to report all income earned and take only qualified deductions. The IRS considers a tax return fraudulent when income is omitted and deductions are illegitimately taken.

Self-employed workers can claim many deductions on their tax returns, which lowers their tax obligations. The IRS pays close attention to the tax returns of self-employed workers to see if they are taking legitimate deductions. If you are self-employed, a tax attorney can help you determine whether you’re claiming the right deductions.

A high income-to-deduction ratio raises a red flag with the IRS. For example, if you have a charitable deduction of $10,000 and your annual gross income is $25,000, the IRS will question the deduction because it seems higher than you can afford to pay. You are not penalized for legitimate deductions, but you must prove your case if you are audited. If you have any deductions that the IRS might deem questionable, fully explain them in additional documentation.

Avoid errors on your return. Check your return multiple times to find any errors in your personal and financial information. Try to use exact amounts on your returns. Using numbers like $1,000 or $5,000 can raise red flags with the IRS because they seem like a best guess and not an accurate amount. When mailing your paper return, it is best to send it by Certified Mail. You can track your return and know when it has reached the IRS.

Consider registering a business entity instead of operating as a sole proprietorship. According to IRS data, corporations and limited liability companies (LLCs) are less likely to face an audit than sole proprietorships. The disadvantage of forming a business entity is the cost, time required and paperwork. However, the chance to avoid an audit may outweigh those factors .