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Common tax issues that raise chances of IRS audit

| Aug 2, 2018 | audits

Although individuals in Maryland only face a low chance of getting audited by the Internal Revenue Service, not all tax returns are created equal. The IRS uses computers to analyze tax returns and flag some for closer review based on criteria meant to identify potential problems. Self-employed income, higher-than-average itemized deductions, rental properties and home office expenses all represent categories that could cause the agency to scrutinize people’s tax filings.

People who earn over $400 per year from self-employed work, like freelancing, consulting or driving for Uber, must pay Social Security and Medicare taxes on that income. The IRS considers unreported self-employed income to be a significant source of missed tax collections. Itemized deductions for expenses like medical care, interest payments, taxes and charitable giving that exceed average amounts also increase the risk of audit.

Deductions from losses on rental properties attract the attention of the IRS as well. The agency might choose to investigate these tax filings to confirm the validity of claims made by people who say that they as real estate professionals. As for home office expenses, the IRS might flag a return that used the regular method to deduct expenses compared to the simplified method.

When a person receives a notice from the IRS, the advice of an attorney familiar with audits may help limit negative consequences. An attorney may inform a person about their rights when interacting with tax agents. Legal support might help a person collect financial records and present a thorough response to IRS requests. If the agency identifies unpaid taxes, an attorney may be able to negotiate a settlement that gives the person time to pay and become compliant. In some cases, an attorney might prepare litigation to appeal a decision that does not fairly represent the person’s tax status.