One fine morning IRS showed up at your house or workplace is the worst dream of any earner in our country. It can literally increase anyone’s blood pressure. IRS tax audits are not very uncommon where a large amount of money is concerned.
Taxpayers usually make some common mistakes that attract IRS officials. In this blog, we will discuss five common mistakes that can trigger an IRS audit.
Cash Deposit
The most common mistake that a person can make is to deposit a large amount of cash in his house or workplace. According to Bank Secrecy Act, businesses need to submit information whenever there is an exchange of a large amount of cash that is more than $10,000. This rule was passed to control illegal money transactions.
If you have amassed that kind of amount or spent to buy something, IRS will more likely look into it. What you need is a proper answer to it. You have to disclose the source of your money to avoid any further prosecution. You can contact a tax expert (whom include tax attorney in Riverside) to get more help.
Self Employment or home-based business
Proprietors and freelancers are entitled to tax deductions. Under Schedule C, home-based businesses get deductions for home office place, mileage, travel, etc. Some business owners find loopholes in this system and try to profit from it. IRS looks closely at these cases and sends audit notices if any suspicion arises.
The rule says if you have a home office, it should only be used for business and nothing else. It is considered illegal to use that place for anything else. Doing business from your home can get you many benefits, but you need to be careful around the rule. IRS keeps a close eye on these small home-run businesses.
Asset in Another Country
If you have deposited cash in another country or have assets, the information not shared with the IRS can bring trouble. IRS officials give special notice to foreign exchange. They target specifically those countries which have favourable tax laws. IRS can give you notice or even siege some of your assets if sufficient evidence is found.
They can access information from any foreign financial institution if needed. Some foreign banks have a tie with the United States, obliging them to share confidential data. If you have more than a $10,000 balance in a foreign bank, you must inform IRS using IRS form 8938.
Investment Income
Have you invested in the stock market? It is undoubtedly a good investment, but the profit from a share market is taxable by law. Many common people who invest in the stock market do not know this and ultimately receive IRS notice. Having insights from professionals (including tax lawyer consultation) is a good option for them to understand the rules and play by them.
Crypto Income
Cryptocurrency has been on-trend from 2016 onwards. It has gained huge popularity all over the world. El Salvador even declared Bitcoin as its legal tender. Many people started investing in cryptocurrency in early 2020. Before investing, one must check all the necessary information and IRS’s stand on it.
As of now, IRS treats crypto as property. The tax rate on a property is the same as on cryptocurrency. If you have invested and earned a profit from it, you must pay taxes to avoid an IRS audit.
Some taxpayers usually make mistakes that invariably trigger an IRS audit. We need to understand the rules and abide by them to avoid unwanted situations.
