This month is our Guest Blogger for March is Wendy Uken. Wendy is a designated agent for the IRS and a QuickBooks Pro Advisor. She is also the co-founder of the Gonzales Tax Group in California. You can visit her website at http://www.GonzalezTaxGroup.com.
A tax audit is notoriously time consuming and stressful. Unfortunately, self-employed individuals and small businesses are more at-risk to be audited since they can typically deduct any expense that is “ordinary” and “necessary” to the business. Here are 3 common mistakes that can trigger an audit:
Rounding numbers to the nearest ten or hundred dollars. For example, rounding a $91.00 “office supply” expense to $100.00. By rounding, you are creating a $9.00 expense that does not exist. To avoid an audit, only round to the nearest dollar (for example: $1.03 should be rounded to $1.00) and should keep records of each expense.
Mistakenly Taking A Home Office Deduction. Many self-employed individuals try to keep expenses low and often work from home to save on office rent. The space used may qualify for the “Business Use of Home” deduction, but the space must be regularly and exclusively used for work, and it must be the principle place of business. For example, a dining room that doubles as an office, does not meet the “exclusivity” requirement and thus does not qualify for the deduction. Mistakenly claiming the deduction or miscalculating the space can raise red flags. To avoid an audit, you should only claim this deduction for spaces that meet the requirements.
Income Inconsistency. The IRS receives information from many sources: W2s from employers, 1095s from Health Insurance Providers and 1099s from anyone that pays contractors more than $600. If the amount reported to the IRS is different from what you report, the IRS is likely to ask why. To avoid an audit, you should review your income and tax forms (1099, W2, ect) and ensure that you are reporting all of your taxable income. You should also include income even if you don’t receive a 1099 for it.
Overall honesty is the best policy. You do not need to fear an audit if you can substantiate the information on your return and keeping accurate tax records is key to protecting yourself against an audit.
Of course, this information shouldn’t be construed as advice specific to your situation, and you should always consult a professional. As Enrolled Agents (IRS Designation) and QuickBooks ProAdvisors, my team and I can represent individuals and businesses in all 50 states and we would be happy to work with you directly. Simply visit Gonzalez Tax Group and complete the “Contact Page” or give us a call at 818-539-7014.
Author: Wendy Uken
Enrolled Agent (IRS Designation) & QuickBooks ProAdvisor
Co-Founder of Gonzalez Tax Group