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Common mistakes leading to a tax audit

Anyone understanding the consequences of an audit will also understand why taxpayers will want to avoid it. The results of an IRS audit can lead to significant penalties including fines and possible prison time. Under the best of circumstances, the whole audit process can prove expensive and time consuming.

Unfortunately, there are also a significant number of mistakes that Michigan residents can make that lead to a tax audit. The IRS closely scrutinizes returns when looking for any irregularities.

One thing the IRS will examine in tax returns is the use of round numbers. When using round numbers multiple times in a tax return, the chances of a taxpayer facing an audit increase. For example, the IRS will likely be skeptical about expenses adding up to exactly $1,000, or the costs of a particular service also ending in a round number.

Where taxpayers frequently make errors in reporting that can lead to an audit involves cancellation or forgiveness of debt. In the eyes of the IRS, canceled debt is generally income. And exceptions to this rule are rare. Unfortunately, reportage of cancellation of debt is complex under the tax rules. And 1099 information concerning this information may not always be accurate.

Finally, it is not permissible for taxpayers to deduct more in gambling losses than any winnings for the year. This is also an area where documentation is required to prove any deductions are accurate.

Unfortunately, audits do occur even if you do everything right. In the event you do face an audit, it is not a good idea to represent yourself. The consequences of making a mistake during an audit can prove severe, and such mistakes are usually irreversible.

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