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Reg flags the IRS catches that may cause an audit on your tax return

(FINANCE) No one likes doing taxes in the first place, but having to deal with the afterthought of an audit on your tax return makes it even worse.

Tax return paperwork with blue computer mouse, pen, and coffee mug.

Will your tax return get flagged for review?

The IRS’s advice to bypass delays this tax season is to avoid filing mistakes. CNBC states the IRS is already facing a backlog of returns and a staffing shortage this year.

The good news is that there are things you can do to speed up your 2021 tax refund.

To Err Is Human

Number one on the list is to double-check your tax return. Yes, this is lame advice, but according to Eric Pierre, a certified public accountant in Austin, Texas, “Half of the problems are from taxpayers not providing accurate information”.

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With the additional stimulus check and the advance child tax credit payments, more errors are expected. Once there’s an error it’s flagged for manual review slowing down the process for everyone. To combat these issues the IRS is mailing informational letters regarding verification. You can find the stimulus check letter 6475 and the child tax credits letter 1649 in your mailbox soon if you received those funds within the past fiscal year.

According to CNBC, “The IRS uses software with a numeric score for each return…[which] estimates the appropriate range for each deduction or credit by income level, and if write-offs are outside that range, scores may increase, he said. [W]ith higher scores more likely to spark an audit, explained certified financial planner David Silversmith, a CPA, and senior manager of PKF O’Connor Davies”.

Another red flag that will auto-generate a notice is if your income doesn’t match the tax paperwork you submitted. The IRS made a free transcript tool available online to help you double-check and avoid underreporting mistakes.

Other considerations for self-employed individuals revolve around the earned income tax credit.

“If you claim the earned income tax credit while self-employed, that is a big red flag,” [Silversmith] said. “You need to have receipts for income, not just deductions.”

Unlike the courtroom, you are not innocent until proven guilty and the burden of proof falls on you as an entrepreneur. Make sure to gather all of your receipts for deductions but, equally as important, receipts for income as well. Hold onto your records for seven years just to be sure you won’t need them should the IRS come knocking.  According to Preeti Shah, “If you receive notices and can provide proof, the IRS is generally ‘pretty reasonable’”.

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The IRS website states the following service delays listed:

  • Live phone support
  • Processing tax returns filed on paper
  • Answering mail from taxpayers
  • Reviewing tax returns, even for returns filed electronically

Jessica Martin escaped from Texas to Austin to receive her degree in English from the University of Texas. When she isn't writing, you can find her outside playing with her kids, camera in hand.

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