Being randomly selected for a drawing or a lottery couldn’t be a more exciting experience. Being selected for an Internal Revenue Service (IRS) audit? Well, that has quite the opposite effect. However, if you know the red flags commonly known to trigger tax audits, you can take the necessary steps to protect yourself from these audits. Here are a few tax audit triggers to look out for this year, based on the latest tax audit reviews.
First, if you earn anywhere from $200,000 to a million dollars per year, you increase your chances of being audited by the IRS. This is especially true if you own a business. In addition, you further put an IRS target on your back if your earnings surpass a million dollars per year. The audit rate for those earning over $1 million was more than four times the rate of those earning $200,000 to $1 million in 2017, according to IRS statistics.
Still, you can be on the IRS’s radar even if you don’t make $200,000 per year yet you are a business owner. IRS data indicate that the government is more likely to examine tax returns filed by the self-employed versus W-2 employees. So, make sure that if you are self-employed, check your tax return’s numbers for accuracy. Also, maintain a solid paper trail that will back up the deductions you claim and the income you report.
Third, you may be contacted by the IRS if you’re using cryptocurrency, according to audit defense reviews. That’s because if you buy and sell items using this increasingly popular currency option, the transaction has tax consequences and thus must be reported—something that many taxpayers may not realize. Note that the IRS has access to information about cryptocurrency transactions via Coinbase, a wallet for digital currency. If the tax information you give to the IRS doesn’t include these details, you can expect the IRS to scrutinize your returns more closely.