Even though some IRS audits are chosen at random, there are a few factors that could put Texas taxpayers at an increased risk.
Taxpayers in Texas may understandably have a fear of being audited. After all, an Internal Revenue Service audit may be incredibly time-consuming and end in the consumer having to pay money to the government. However, that is not always the case.
Fortunately, only a small percentage of people will ever undergo an audit. A report from The Wall Street Journal points out that in 2015, less than 1 percent of taxpayers had to endure the process. In any case, it is a good idea for people to understand what may put them at an increased risk of being flagged.
According to an article in Kiplinger, the more money someone makes, the more likely they may be audited. For example, there is a one-in-17 chance of being audited if someone makes $1 million or more, but only a one-in-154 chance for people reporting less than $200,000.
Another key aspect would be failing to report income. Some people may tend to forget that the IRS receives 1099s, W-2s and other forms that cite taxpayer income. If those numbers do not match the figures on someone’s return, it sends up a red flag. This could mean more than just an audit – it could result in a charge of tax fraud.
Taking deductions – charitable and otherwise – is an excellent way to reduce the amount of tax someone owes the government. However, this should always be done legally. Taking too many deductions could raise an alarm with the IRS. That does not mean that if a taxpayer is able to justify significant deductions that he or she should not take them; it just means that it could increase the risk of an audit. This is especially important when it comes to people who own a business. Owning a business opens the door to countless deductions.
Any number of losses may be reported on an income tax return: business losses or rental property losses, for example. However, there are certain rules and limitations that may apply. IRS agents scrutinize losses to ensure their legitimacy. Further, people are not permitted to try to write off losses from a hobby. For example, reporting gambling winnings is mandatory. According to the IRS, someone may only deduct a gambling loss if he or she has a detailed record of all wins and losses and if he or she itemizes deductions.
These are just a few basic ways in which a consumer could be easily targeted for an audit. However, the IRS also randomly chooses returns. Therefore, just about anyone could be subject.
This simply reinforces the fact that taxpayers should be honest on their returns and consult with professionals about any potential issues. People who have questions about this topic should speak with a tax attorney in Texas.
Have a question? Contact Frank Hider. Your comments are always welcome!