How the IRS will decide to Audit you
Every year many taxpayers receive a letter from the IRS audits to start the process of an audit. Many believe that because of bad luck or God’s punishment, they have to face the IRS. If you want to avoid this drama, panic and the emotional effect of an IRS audit, make sure your return doesn’t include any of the topics below. Kerri Anne Renzulli wrote an interesting article, click here to read it. Below there is a summary:
- You Earn over a Million: If you make over If you make over a million a year, your chance the IRS audits you increase from 0.84% to 8.42%.
- Filing for Estate Tax: This is not the typical state tax return you file if you live in NJ or NY. Estate Tax is for high-network individuals who received an inheritance and file a return to report the income that such inheritance produced.
- Taking Losses on Rental Properties: You can only deduct rental losses if you are a broker, a landlord or a real estate professional and if you have spent 50% of your working time and 750 hours every year participating in real estate.
- Early Withdrawals from Retirement Accounts: Retirement plans and IRAs are liable to a 10% penalty in addition to the regular income tax payment. Many taxpayers try to omit the penalty and that calls an IRS audit.
- Holding Money Offshore: If you don’t inform the IRS of your foreign bank accounts for any individual or compound balance over $10,000, the bank itself will do it directly to the IRS. File FBAR report by April 15 and avoid being audited and penalized up to $10,000.
- Charitable Deduction: The IRS keeps a check on the average donations of every person of every income level and if your donation exceeds that amount then you can expect the IRS to be suspicious but if you have nothing to hide then you have nothing to worry about an IRS audit.
- Not Reporting All of your Income: If you have many sources of income make a file and keep a record of everything to avoid confusion and an IRS audit if you forget to report something.
- Business Losses: If you are in business, either as a self-employed or as a company, you are in business to make money. The IRS will audit your reporting losses.
- Alimony Payments: If you divorce and the judge decrees you give a pension to your spouse until she dies or remarries, you can deduct the payments. Any other payment must be named as alimony on the divorce decree to be deductible or you can face an IRS audit.
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