Pennsylvania – The IRS audits less than one percent of tax returns. But yours could still be one of them.
A little advice from tax accountant Janice Hayman. “It is absolutely never worth it to cheat on the tax return.”
Even though the number of returns getting audited has dropped to all-time lows, she says anything smelling too fishy still can get noticed. Auditors notice things that don’t make sense based on income or lifestyle or prior history.
These days everything’s computerized, online and reported to the IRS so it’s not hard for them to track your income.
That said, it’s OK to make an honest mistake on your tax returns.
Hayman says, “It is absolutely understandable if you had an error in judgment or a legitimate error. Go back, amend that tax return. It’s not a problem to catch your mistake, your misstep, and realize, ‘I didn’t declare all my income."”
A mistake isn’t fraud. Overstating deductions and exemptions is.
The most common things that flag an audit (whether you intentionally did them or not):
Forgetting a W-2 – If you didn’t get a W-2 in the mail for a job, you need to ask your employer for it. It’s your responsibility to report all income that you’ve earned from your employer in the past year. If you’ve worked several jobs during the year or if you moved, double check that you have all of the right documents before you file.
Not reporting your freelance income – With more people working in the “gig economy” and doing small freelance jobs, more people are in the situation where they are accidentally cheating on their taxes. If you do more than $600 worth of freelance for one business, you should have a 1099 form. If you expect to owe more than $1,000 in taxes from your freelance gigs, you’re required to make estimated tax payments four times a year. You might wind up with penalties otherwise.
Overestimating business expenses – If you plan on writing off business expenses, make sure you keep receipts and records. Overstating could cost you. If you fudge the number, it could flag an audit, which will land you in trouble.
Click below to hear the audio report from ABC’s Scott Goldberg.