When you file your taxes this year, do you know how to avoid getting audited? Here we share some Coral Gables IRS defense advice about what activities might start an IRS investigation.
Scroll down to hear founding partner of Casais & Prias, Rolando Casais, Jr. explain your options if you owe back taxes to the IRS.
As tax time gets closer and you are preparing your tax return documents, there are many rules you need to keep in mind. It is hard to follow all of them, or know which ones apply to you, without professional help. Our Coral Gables IRS defense team at Casais & Prias has first-hand knowledge of how the IRS operates because our managing partner is a former IRS agent. Here he answers some of your top questions if you are concerned about triggering an IRS audit.
Will the IRS computers flag my return?
The IRS computer system examines every tax return for things like duplicate information and deductions that do not make sense based on the income of the taxpayer.
For example, if two taxpayers claim the same dependent on their returns, their returns could be flagged. Or, if someone claims deductions that add up to 95% of their income amount, it could be considered unusual activity and could trigger further investigation.
The system compares the same income levels across the board, so when a taxpayer’s activity is substantially different from the others in that income level, it may stand out.
What types of businesses raise red flags?
Some business models are scrutinized more than others because their structures can leave room for inaccurate reporting.
- Self-employed – If you are self-employed, you are responsible for keeping track of what taxes you owe. You do not have an employer withholding taxes from your paycheck. This type of employment makes it easier for mistakes to be made, whether intentional or unintentional.
Sole proprietors are also able to claim many tax deductions such as travel expenses, home office expenses, and others. If your deductions are higher than a certain percentage of your income, it could trigger an audit.
- Home-based businesses – Similar to a self-employed taxpayer, if you operate a home-based business, you are responsible for maintaining your tax records. You are also able to claim deductions for your home office but there are strict rules about what you can claim for your business and what you cannot. Talk to our Coral Gables IRS defense legal team if you need clarification on these deduction rules.
- Cash-based businesses – Businesses like salons, restaurants, and bars that operate mostly in cash tend to raise red flags. The IRS thinks a business owner may not report all of their cash income because it is more difficult to track. If you operate a cash-based business, you may need to consult with a Coral Gables IRS defense lawyer, just to make sure you are reporting your income and expenses correctly.
How long should I keep my tax returns?
Once you have filed your tax return, hang on to it. If you are audited, the IRS can go back and look at three years of tax returns or more in some circumstances. Keep all of your tax documents filed away for up to six years if you have sources of income that may be more likely to trigger an audit.
These are only a few of the questions you may have about an IRS audit. The team at Casais & Prias can guide you through the tax return process and represent you if the IRS is investigating your tax returns. If you have any concerns about your tax documents, or you have received notice of an IRS audit, contact us right away for a free case evaluation. Our Coral Gables IRS defense attorneys are here to help you.