It’s the dreaded fear of every taxpayer: the audit. Regardless of whether you pay your taxes correctly, an audit can cost you valuable time and result in weeks or months of stress. If you are focusing on the credit repair process, that may be time you can’t spare. Consider the list of audit triggers below when filing your tax forms. Awareness could shield you from a series of falling dominos that may ultimately erode your credit repair efforts—not to mention a world of aggravation and stress.
1. Your basic information is wrong. You misspelled your name on your IRS Form 1040; your Social Security Number was listed incorrectly; you forgot to list your apartment number; etc. Sometimes the smallest details can prompt deeper IRS attention. Dot each i, and cross every t when filling out your forms. Review each line of information before submitting them as “completed.” Attention to detail could spare you from an itemized audit later on.
2. You got a raise. “Congratulations on making more money. We’ll be auditing you now.” Sad, but sometimes true. While extra cash can do wonders for your credit repair efforts, the IRS may initiate an audit. Why? Living “beyond your means,” hiding income, and padding deductions are just a few of the possibilities. Save your receipts and brace yourself. An audit isn’t guaranteed, but there is a greater chance.
3. Unreported income. Bad news for the mathematically impaired: the IRS has the low-down on your total income. 1099 and W-2 forms submitted by your employer(s) help Uncle Sam compare your apparent bottom line with your tax returns. If your boss reports your income as $60,000 and you only claim $50,000, the IRS wants to know what happened to the extra $10K. Review your tax forms carefully to prevent such glaring errors. Simple mistakes can result in tedious consequences, ones you should work to avoid.
4. “Everything is deductible!” Slow down when it comes to claiming tax deductions. While standard deductions aren’t likely to raise any red flags, claiming a large donation might, especially if the value represents a substantial percentage of your income. Home office deductions and charitable expenses are among the main culprits of tax audits. Be sure that all your deductions are legit—and keep the receipts to prove it.
5. Your state taxes are wrong. The IRS is a federal agency with influence that reaches far beyond Washington, D.C. In that regard, every state maintains an information sharing process with the federal government, allowing them to compare citizen tax returns on a state and federal level. If your state return is incorrect, expect the IRS to take a closer look at your federal filings as well. One mistake can lead in one camp can lead to problems in the other, so it’s up to you to keep the numbers in check.
While some audits are unavoidable, practicing diligence during tax time may reduce your risk. Focus on Uncle Sam while you have to, and then refocus on your credit repair goals.