Common Tax Mistakes That Can Trigger an IRS Audit

Tax time is here, meaning it’s time to file your annual return. Unfortunately, if you’re not careful, you could make a mistake that could trigger an IRS audit. 

Luckily, if you know what to look for, you can avoid these mistakes. In this article, we review a couple of common tax mistakes we see in working with clients.

If you already find yourself the subject of an audit and need professional support, our team is ready and accessible here.

Reporting the Incorrect Income

When reporting your income, you must report all taxable income correctly. You can’t estimate it.

The IRS receives copies of your W-2 and 1099 forms and can compare these documents to the amounts on your return.

Small Income but Large Donations/Overestimating Donations

Making large donations compared to your income can be a red flag for the IRS. You must accurately report what you donate and keep proper documentation. Overestimating your donations can also trigger an IRS audit.

Keep all receipts, file Form 8283 for donations over $500, and have noncash donations over $5,000 appraised. This documentation can support your donation if the IRS raises questions.

Self-Employment/Small Business Mistakes

Self-employed individuals and small business owners tend to have more options for deducting expenses. Unfortunately, this means more room for mistakes, such as claiming too many deductions or expenses.

Sometimes, these business mistakes can trigger in-depth audits, meaning you’ll need the help of an audit defense attorney.

Deducting Expensive Client Dinners

The rules for deducting client dinners can be tricky. Generally, you can deduct a portion of reasonably priced meals when entertaining current or potential clients. 

You’ll need to keep all receipts and record other information, including:

  • Date and time
  • Description of the expense
  • Business purpose
  • Relationship of those you paid for

Using Your Business Vehicle for Personal Use

If you have a business vehicle, you must use it only for business purposes. If you use your vehicle for business and personal purposes, you must document the percentage of personal vs. business use. Excessive expenses or claiming 100% business use could trigger an audit and require a tax audit lawyer.

Always keep detailed mileage logs, including the business purpose of each trip.

Home Office Mistakes

Working from home doesn’t necessarily mean you can take the home office deduction. This is generally reserved for independent contractors and certain other categories of workers, and regular employees are generally not allowed to take it.

Even if you fit into one of these categories, you must ensure you are only deducting for the space you use as your home office. A CPA who works with a tax compliance lawyer will be up to date on the current tax code to ensure the deductions you take are allowed.

Confusing Your Hobby for a Business

If you’ve made a profit three out of the past five years, the IRS will consider your hobby a business. Otherwise, you must establish a profit motive to be considered a business. If you have business income, you need to report it to the IRS.

Make sure to keep proper documentation for your income and expenses. Having a separate bank account for your venture can help support that it’s a business and avoid needing a tax audit lawyer in the future.

Simple Mistakes

If the IRS finds a math error, it will send you a letter proposing a fix to your return, plus additional taxes, interest, and penalties due to the mistake.

Be sure to fill out your return completely and correctly, meaning no typos and with all the correct information. Always double-check your numbers and information before submitting your return. Filing electronically and working with a tax professional can also help avoid these mistakes.

Understanding IRS Audits and the Role of a Tax Audit Attorney

While many audits occur within two years of the filing, if auditors find mistakes, your taxes for up to six years can be revised. Most people will undergo a correspondence audit when the IRS requests documentation or information about their return. 

In an office audit, IRS agents will interview you about your return and probably request additional documentation. Field audits are more serious and involve an agent visiting you and reviewing your financial records.

While IRS audits can be scary, you do have rights, including the right to legal representation for audits. 

Avoid Common Tax Mistakes With a Professional Tax Audit Lawyer

Finding professional tax preparation help can reduce the risk of triggering an IRS audit. At Murray Moyer, PLLC, our CPAs work with our tax examination counsel to prepare your returns accurately.

If something should happen to trigger an audit, you can also rest easy knowing you’ll have the legal help of our tax audit lawyer team to navigate the process.

Are you looking for an experienced IRS audit lawyer in Raleigh, NC? Call Murray Moyer, PLLC, at 919-846-6779 for the legal representation you need.

Written by Justin Moyer on April 10, 2024.