IRS and Illinois Department of Revenue audits are becoming increasingly common for both businesses and individuals. The tax authorities are expanding efforts to audit taxpayers using a targeted method of return selection. Computers “score” tax returns and crosscheck information from various sources such as 1099’s and K-1’s; this allows the government to identify missing, inconsistent or suspicious information. That means simple mistakes can result in an increased chance of being audited.
Taxpayers are often overwhelmed by confusing documents and unfamiliar terms, increasing the risk of making a small error that could result in a red flag to the tax authorities’ computer systems. If you’re concerned about filing your taxes and the possibility of an audit, having a tax professional prepare your returns is a great option. But if you do decide to prepare your return yourself here are several important things to remember:
- Pay close attention to detail. Make sure you check and re-check all numbers and information on your return. Errors, even as simple as a missed digit, can result in inaccuracies.
- Report your income. Even if it’s tempting to leave off small amounts of secondary income, say on a 1099 for some freelance work and just report your W-2’s, the IRS is already aware of all your income and by omitting it you’re creating a potential for figures that don’t match up. Make sure to report all your income sources, including interest earned, and stock and bond sales.
- Accurately report charitable donations. Making donations to charitable organizations is an excellent way to reduce your taxable income. But never report false donations. Make sure to accurately represent your donations and ensure you have proper documentation to substantiate itemized donations taken.
A significant rise has come in the form of correspondence audits. Because it’s cost effective, the tax authorities are creating substantial amounts of tax notices through correspondence audits or “nuisance mail” as we refer to it. We believe the amount of nuisance mail will only continue to increase due to the IRS’s role in complying with the Affordable Care Act.
Any audit can be cumbersome and alarming for the taxpayer. If you do receive a letter in the mail from the tax authorities it may be best have a tax professional review the information requested and the tax return. Klein Hall CPAs is pleased to offer a new Audit Prepayment Plan with our preparation of tax returns this year. If you are selected for an audit or need to reply to IRS or state tax notices, with our new Plan we will represent you in any audits related to these returns up to the appellate level and reply to tax notices you receive at no additional charge. In an effort to support our clients and keep our services affordable, the Audit Prepayment Plan is available for only an additional 10% of your regular tax preparation fee (minimum $75). More information about this Plan is available by clicking here and will also be shared with all tax returns through the client portal.