How Avoid An Audit In 2022
As we are approaching the end of the 2021 late filing season, we just learned that the IRS will add 87,000 new agents (check out the news at this link). Now more than ever, it’s important to file pristine tax returns.
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This is a list of actions to take now to substantially reduce your chances of getting audited:
File your tax return on time
Do not miss filing deadlines and pay your estimated taxes on time.
Don’t inflate the home office deduction
Taking a home office deduction that is too big will put your return under the spotlight. Generally, keep it lower than 30% of your home expenses.
Do not use round numbers
Round numbers on the tax return may raise a red flag as they are often seen as estimates, keep track of the actual costs instead.
Always issue the 1099 Form when hiring a contractor
You can’t take a contractor deduction if it’s not supported by a 1099. Make sure to file them every year and send them to your contractors.
Don’t get excessive with travel and dining write-offs
It should be commensurate with your income.
If you get a letter from the IRS asking clarifications, answer as soon as possible
The answer might be sufficient to stop any further investigations.
If you net more than $30,000 net a year, switch to an S-Corp.
You’ll save in taxes and lower your chances to be audited by 1500%.
Quarterly payroll reports
If you have employees, make sure your quarterly payroll reports (From 941) are going out on time.
Be aware of common expenses and industry expenses
A real estate agent with a high amount of employee costs or a doctor with substantial travel expenses just don’t look right.
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