First off, I am not an accountant and I don’t offer tax advice. That being said, I have learned a few things over the years that may help. For many folks, we are entering one of the most frustrating and anxiety producing times of the year – tax time. Time to get those taxes done, and either settle up with or receive a refund. Unfortunately the tax code is complicated, which can lead to more anxiety. No one wants to be audited. However here are a few “Red Flags” I’ve learned you should be aware of that could potentially lead to an audit.
Major Changes in Income. Reporting a significant increase or decrease in your income can trigger a flag for a closer look.
Not Filing the Correct Forms or Filing Incorrectly. Not including a W2, filing an incomplete return, or having numbers that don’t match up between your reported and claimed income can prompt a closer look.
Being Self Employed. Claiming a home office and having business expenses while not earning much income. Car expenses, meals – all factor in.
Claiming Losses from a Hobby. Having a hobby is great, but you can’t claim any losses unless you expect to make a profit. Doing so opens you to a possible audit.
Being Overly Generous. If you have a history of donating to charity and suddenly one year the donations are much higher, that can trigger an audit. For example, say you donated an average of $1000 a year to charity, and this year you have deductions of over $10,000. That might get a closer look.
Having an Overseas Bank Account. There are additional reporting requirements for having an overseas bank account. Not reporting the fact you have a bank account overseas can trigger an audit.
There are numerous ways to get your taxes completed, and many professionals are extremely qualified to give you expert advice (I am not!). The only tax advice I ever offer is to find a professional you can trust and speak to them. However, having tax advisors working together with a financial advisor may provide you with less stress during this time of the year!
-William Gergich, Financial Advisor