You never know ultimately what could cause you and audit once this tax season is over. Here are 6 potential red flags to avoid that could put you in hot water.
- You make stupid mistakes- Information has to be entered on to a tax return one way or another. If you choose to do your taxes by hand, math errors could be very costly for you in the long run if you get audited. You should consider using a tax program or a professional to avoid making addition, subtraction, multiplication, or division errors. Sometimes, you may miss filling in certain boxes as well which can be another trigger for the IRS.
- You have a big mouth- You should never brag to anyone privately or publicly that you pulled a fast one on the IRS. Especially with the proliferation of sites like Facebook and Twitter, the IRS has become much more intelligent in watching these sites for people who don’t report income or try to fraud the Government. Whistleblowers can earn some significant rewards by turning in cheats, so be very careful about who you share your strategies with around your taxes.
- You didn’t file your taxes- Needless to say that you should file your taxes every year. When you don’t file your taxes, you could leave yourself to unwanted penalties and interest. If you don’t file for multiple years, you could put yourself in a position to serve jail time as well.
- You have an unincorporated business (Schedule C Sole Proprietor)- Anytime you get 1099 income during the course of the year, you are in a sense a de facto corporation as a sole proprietor. A business that continues to lose money year over year may be considered a hobby especially if you don’t turn a profit over three of the last five years. If the IRS audits you, they could potentially disallow the deductions.
- You guess on investment cost basis- No matter what investment company has your money, keeping track of your cost basis is something that you always want to keep an eye on when you do your taxes. Especially for those of you who inherited individual stock from your parents or grandparents and may have inherited the cost basis. While most of the large brokerage firms do a good job of keeping cost basis, many of the direct reinvestment dividend plans don’t keep track of cost basis which may make it a nightmare to do your taxes. Don’t every try to guess on this as the onus will be on your to prove you are right.
- You have a sketchy accountant-Hopefully you have selected an accountant or accounting firm that is above board. If your accountant promises you a quick refund before your tax return is even completed, that may give you cause to run for the door. Make sure you are not taking illegal deductions and check everything twice as you will be responsible for penalties and interest if it isn’t done right.Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20’s, 30’s, and 40’s in the country.Written by:
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc - The Leaders in Gen X & Y Financial Advice
TED JENKIN IS SECURITIES LICENSED THROUGH INVESTACORP, INC. A REGISTERED BROKER/DEALER MEMBER FINRA, SIPC.ADVISORY SERVICES OFFERED THROUGH INVESTACORP ADVISORY SERVICES, INC. A SEC REGISTERED INVESTMENT ADVISORY FIRM. Linked sites are strictly provided as a courtesy. Investacorp, Inc., and its affiliates, do not guarantee, approve nor endorse the information or products available at these sites nor do links indicate any association with or endorsement of the linked sites by Investacorp, Inc. and its affiliates.