The tax code is a complicated beast. And daunting even for the savviest Chicago tax filers.
All 6,871 pages of the tax code make it easy to miss or overlook things… and make mistakes. And, like it or not, that can lead to the IRS pulling the audit card on you.
The newly minted Inflation Reduction Act (IRA) and the enforcement of the 1099K laws for digital payments both mean more changes to the tax code and potential chaos… as well as the possibility for more audits.
Now, the IRS has asserted that half of the $80 billion injection focused on enforcement and hiring more agents will target higher earners and large corporations.
While that is good in theory, it may look different in practice – the hiring process and qualifications for these kinds of agents takes real time. And historically, the agency has found it much easier to grab at low-earning and middle-class fruit.
I’m not crossing my fingers on that note, but regardless of what happens in the coming years, I want you to be prepared to face the possibility of an audit.
If you’re still dealing with tax problems from previous years, though, that’s something my team and I can help you with now. Getting things cleaned up with your tax liability will only mean good things if you should face an audit in the future. Reach out to my office to chat:
Because I want you to be prepared (whether you use my services or not), let’s take a look at the tax reporting flags the IRS looks for and how you can lean on your rights if you have to go through an audit…
IRS Red Flags Chicago TaxPayers Should Steer Clear Of
“The payment of taxes gives a right to protection.” – James M. Wayne
When it comes to dealing with the IRS, the one thing most people fear across the board is the audit.
Having the government poke around in your finances conjures some real discomfort… after all, you’re one little Chicago taxpayer up against the IRS giant.
But at the end of the day, the big bad tax man is not trying to cheat you or waste your employees’ time conducting unnecessary examinations of your tax standing.
If they do decide to take a closer look… in true American fashion, there are laws that give you rights and limit the IRS’s power when it comes to running audits.
Cue sigh of relief: Whew.
Before diving into that, let’s quickly review some reasons that you may be flagged for an audit in the first place.
When the IRS Red Flags Wave
Now, most people will never fall afoul of the IRS audit machine. Still, knowing what they’re looking for will help you be one step ahead of the game if your time comes.
Uncle Sam doesn’t just conduct audits at random. There are specific situations that trigger IRS red flags getting waved over your taxes.
Some of these include:
– Write-offs that are suspiciously large compared to your earnings.
(Keep this in mind if you give away a lot of money every year.)
– Unreported income
– Refundable credits (i.e. the earned income tax credit)
– Home office and auto deductions
– Rounded numbers
– Making more money
– Running a business or conducting a side hustle (hello 1099K reporting rules coming 2023)
There are more, but these are some of the most common reasons.
Rights to lean on
What happens if you’re “lucky” enough to be selected for an audit?
For starters, the Taxpayer Bill of Rights is going to be your new best friend if the IRS red flags get triggered. This bill guarantees ten specific rights for you when dealing with the IRS. A few of them are particularly relevant to the auditing process.
Right to be informed. This means the IRS is obligated to explain the entire process – from examination (audit) through collection – in its first letter to you. No funny business allowed.
Right to finality. They must communicate how much time you have to challenge the IRS’s position (if you wish to do so), how much time they get to audit a particular tax year or collect a tax debt, and when they have completed your audit. The IRS can generally only audit your tax return once for any given tax year. However, they may choose to reopen a previously examined return if they find something fishy (like evidence of fraud… which you should avoid at all costs).
It’s worth noting that the IRS may request to extend the statute of limitations for assessment tax. (This statute limits the time they get to assess additional tax.) You don’t have to agree to this, but that means the auditor must make a decision based upon just the information in front of them. That may be in your favor… or may not.
Before the IRS can finalize your audit, they are also required by law to notify you of your rights to dispute it. This is sent in a letter called a “Notice of Deficiency.” It gives you an important legal right: the option to take the audit to Tax Court and have an independent judge review it. You can choose to either file this petition with the U.S. Tax Court or request a conference with an IRS manager.
And in case you were wondering, the Taxpayer Bill of Rights also protects your right to retain representation. And making sure you have someone trustworthy representing you is something you should seriously consider.
As someone who speaks fluent tax-ese, my team and I at EZ Tax and Accounting Service, Inc. are more than happy to step in on your behalf. We consider it our duty to keep IRS auditors from reaching too far, and we’ll make sure to cover you through the whole process.
And that goes for more than just being audited. I’d be happy to utilize my specific tax skill set to help you find some financial and emotional peace, no matter the situation you find yourself in.
If you’re ready for that kind of help, we’re right here:
In your corner,
EZ Tax and Accounting Service, Inc.