21 Dec How the IRS decides which tax returns to audit?
Few things strike fear in the hearts of Americans like an audit from the IRS. The truth is, audits are few and far between, but you just don’t want to be that unlucky one who gets tagged. To help you understand more about the workings of the IRS, we asked experts in the industry to share their thoughts on which tax returns may be more likely than others to get audited. Here’s what they had to say:
Vincenzo Villamena, CPA
Vincenzo Villamena is the managing partner of the CPA firm, Global Expat Advisors. We are a boutique CPA firm specializing in tax preparation for entrepreneurs, US expats and other folks in special situations.
Generally speaking, the IRS audits people when they are either overly aggressive on their tax returns or when their information doesn’t match. For individuals who have a lot of expenses on Schedule C, especially compared to the income they received (or if they didn’t have income), the IRS will want to examine this further.
Furthermore, if you sold stock or received interest and dividends and did not report this, the IRS will red flag this. Note that this may not necessarily result in a full audit. Rather, you will [likely] just have to pay the difference that the IRS automatically calculates.
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