What Are the IRS audit triggers to avoid in 2016 tax returns and what can Allen Barron do to help those who are preparing and filing their tax returns in Rancho Bernardo, Poway and Rancho Santa Fe? There are several factors that have come out of recent statistical analysis regarding IRS audits and the focal points of those audits. Some of the prominent IRS audit red flags include:
High Income – unfortunately, the fact is the higher your income the more likely it is you will be audited by the IRS. There is simply more opportunity (and resources) for the IRS to pursue.
Deductions and losses – be cautious about over-claiming the amounts on your deductions. Unreimbursed business expenses are often an audit trigger. Claiming charitable deductions that are out of the bell curve for your income level is another red flag. Substantial business losses – especially in relation to income on the return – are always a red flag to the IRS. If those losses mount up over several years in a row without generating income be prepared for an aggressive IRS audit.
Offshore Issues – Those claiming foreign tax credits may increase their risk for audit. Other IRS audit triggers to avoid in 2016 tax returns include unreported offshore financial accounts. Offshore investment and bank accounts must be fully disclosed on FBAR and related IRS forms. If you have not come into compliance with FBAR reporting through either the streamlined program or OVDP the IRS is moving forward on information streaming in from banks and financial institutions around the world. It is better to face an audit of corrected information. If the IRS contacts you for an audit before you disclose offshore activities be prepared to give up most or in some cases all of those offshore assets.
IRS Matching Algorithms – The IRS systems have become much more sophisticated, and are generating audits based upon “matching” analysis. Did the person who received alimony deducted by another taxpayer declare it as income? If you are working as an independent contractor make sure your income reporting matches the 1099’s that are coming in from those for whom you performed work.
Perhaps the greatest automatic red flag audit risk is missing an important informational or tax form that is associated with another form you’ve completed. Off the shelf “turbo” solutions may miss important substantiating documentation – especially as it relates to IRS FBAR compliance and offshore income reporting such as PFIC investments.
The experienced IRS tax attorneys, accountants and tax preparers at Allen Barron are prepared to help you to avoid audit, or represent you in the event you receive an audit notification from the IRS or California tax agency. Learn which IRS audit triggers to avoid in 2016 tax returns and contact Allen Barron for tax return preparation in Rancho Bernardo, Poway and Rancho Santa Fe.