The Internal Revenue Service’s audit department is busy, but it is not because most taxpayers’ returns contain questionable information. Less than 1% of the population is audited every year, which is a far lower number than it used to be. IRS staffing and funding are simply lacking, leaving fewer agents to review and investigate suspicious tax returns. Knowing this may make some Connecticut residents feel they can take little care when preparing their tax filings, but they shouldn’t.
There are seven specific things that millions of taxpayers do every year that may end up getting them audited. These things seem relatively harmless, but if questioned could cost a person a significant amount of money and time in the future. These things are:
- Rounding numbers to the nearest hundred instead of dollar
- Claiming charitable donations without having proper documentation
- Failing to report all sources of income
- Claiming too many business losses
- Reporting too many business expenses
- Deducting a home office
- Making math mistakes
The IRS has up to three years to audit personal income tax returns, longer for businesses, or if some form of tax fraud is suspected. While it may not get to one’s tax return the same year as it’s filed, agents will eventually have time to examine at any returns that get flagged in their system. Those who are audited may end up walking away from the process not owing anything, receiving a higher refund or owing more in taxes, interest and penalties.
Connecticut residents who find out they are being audited do not need to panic. It does not mean they did anything seriously wrong. It merely means that the IRS found one or more discrepancies it feels is worth looking into. Those who feel they cannot or should not deal with the situation alone can turn to an experienced tax law attorney who will be able to help them achieve the best possible outcome.