Types of Businesses where Auditors Target
Even as most tax payers anticipate filing returns and looking forward to obtain easy flow in money in terms of tax refunds, the ones with complicated returns focus as well to do away with circumstances that may demand for an audit.
Bradford Hall, a director at one of the CPA firms known as Hall & Company noted that things are quite different. They could select returns depending on several items in the returns and then review any resulting anomalies like too many deductions in charitable activities that would be selected from the population. Today, it is more of a matching process where they only need to compare the information on your return with that stored in their data base. Hall observed that it is highly unlikely that those who have got earnings in excess of $1 million will be selected for audit.
However, for those making less than one hundred thousand, most audits target specific deductions or some areas in the tax return. The IRS may not give an indication as to why some of our clients were put in the audit situation but simply, particular areas will be targeted like the interest on home mortgage, auto expenses, deductions on property tax or the income of Schedule C. Many are the times that they will make a comparison of your W-2 with the deposits at the bank. In case there are large deposits with no income to support them, a red flag will be raised. It can be a difficult task for some people to recall the source of those deposits.
For all the clients with businesses, there will be a cash receipt test for a period of at least 14 months. This will happen for sole proprietorships, small corporations as well as general partnerships. It is worth noting that in situations where the form of a business changes and a new federal ID number received, one should be very much suspicious.
The secret to have a well done tax return is taking time and effort working on it,’ observed Hall. Many people do not like putting lots of effort and time and this then leaves them at a high audit risk. They require sending more time with CPA’s to ensure that a proper return is done.