Common Reasons Why People Get Audited

All businesses aim to maximize profits from their operations, but in some instances, the chances of misusing funds may not be understated. Some individuals may be tempted to misrepresent their finances to evade paying the right amount of taxes to the Internal Revenue Services. To ensure transparency and accountability, auditing of individuals and the company’s finances becomes critical. Read on to learn the common reasons why people get audited.

Underreporting Some Income

When you are operating a business, you should always input the correct figures of your income on your tax forms. According to Alan Lefkowitz, it is very advisable to hire CFO services to help ensure that your company’s filing is up to scratch and any information submitted is correct. Otherwise, you may incur penalties or sanctions. For example, you can be audited if you are getting more money working as a contractor, but underpaying your taxes. Your employer issues a W-2 form that contains details about your earnings, these forms are then submitted to the IRS. Any discrepancies in the information you provide may trigger an audit by a responsible tax collector.

Verification of Details on Your Tax Return File

People are often audited due to several reasons like making mistakes when filing taxes. This can result in them not paying enough tax or no payment at all. At times, you may not provide sufficient documentation that supports your figures which leads to the IRS raising a red flag. Some of the factors why you get audited include the following:

* Errors in the calculations of your figures
* The omission of critical information you should include
* You make donations with too much value
* You report extreme monetary losses that defy the logic of why you remain in business

Therefore, the IRS will audit the receipts to reconcile the figures that you input on your individual or business tax return. If you are operating a business, you must know that personal and company expenses should not mix. For this reason, hiring an expert service to process your 1120 forms is highly advisable, as they will not make such mistakes. Some people may be tempted to include expenditures that are not related to their businesses to increase their chances of getting handsome tax refunds.

Auditing for Criminal Activities

The IRS may audit your finances to verify the credibility of your sources of funds. If your bank accounts do not tally with your company’s financial statements, there is every reason for the IRS to be suspicious of your operations. Some people engage in underhand deals like money laundering or engaging in other illegal activities under the guise of operating a legit business. When criminal investigation audits are instituted against you, then you are facing some fines or even prison time.

Preventing Fraud in Home Office Deduction

Cases of fraud related to home office deductions are rampant as many people attempt to give themselves undeserving deductions for other extraordinary expenses. If you want to make a home office deduction transparent, you should reserve a specific section that you use exclusively for your business. Working from your living room does not constitute office work, and many people want to take advantage of such settings.

Auditing of individual and business finances is designed to promote transparency in the way they handle their taxes. In some cases, the audits are not just driven by mathematical errors, but something suspicious in your financial reporting. However, auditing is not only about determining issues but instead helps taxpayers to get additional refunds. ?