Seven Simple Mistakes That Can Lead to an Audit : Under30CEO Seven Simple Mistakes That Can Lead to an Audit : Under30CEO
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Seven Simple Mistakes That Can Lead to an Audit

| March 19, 2010 | 13 Comments

young entrepreneur taxesAs tax season approaches people start getting stressed about filing their tax returns.  One sure way to draw the attention of the Internal Revenue Service is making a mistake on your return, here are seven of the simplest mistakes people make so you can avoid some extra stress this year.

1.  Forgetting to sign and date your return. This is so common, the IRS even posted a video on You Tube, with sign language, to remind people to sign and date their returns.

2.  Math errors. The frequency of math errors has gone down recently as more people are using software or professional return preparers, but simple addition and subtraction errors are still an easy mistake you need to avoid.  Double check any manual math before sending in your return.

3.  Wrong social security numbers for you, your spouse or your dependents.  A sure way to get a letter from the IRS is to put an incorrect social security number on your return.  Their computers automatically match names and social security numbers for every return.

4.  Not matching information returns to your personal tax return.  You know all the information returns you get in January and February like W-2′s, 1099′s and 1098′s, well the IRS gets a copy of those also and they match up your return with their copy.  Sometimes you may have a legitimate reason why amounts on a 1099 will not agree with your return, but a W-2 should always match what you report.  If you get an information return that is not correct, contact the person who sent it and have them send you a corrected copy.

5.  Mixing up deductions and credits.  Deductions are used to calculate how much of your income is taxed, whereas credits are dollar for dollar reductions in your tax liability.  Use a bookkeeping application like Outright.com for your business to record everything accurately.

6.  Putting the wrong bank account information on your return.  If you are getting a refund, the IRS allows you to choose to have your money direct deposited into your checking or savings account.  All those little electronic looking numbers at the bottom of your check are how the IRS knows where to send your money through the banking system.  When you put those numbers at the bottom of your return, you can be off one number and that refund will not find its way into your account.

7.  Failing to file electronically.  Electronic filing was first introduced in 1990 and turns 20 this year.  When you file a return manually, most of the information has to be scanned or manually keyed in by an IRS employee.  In their own studies the IRS found that they themselves made mistakes on 20 percent of the returns that were processed manually compared to under 1% on electronically filed returns.

In 2009, the service brought in an additional $48.9 billion from collection, audit and return matching efforts.  Check your return for some of these common mistakes and it will help you avoid additional scrutiny from the IRS.

Outright.com is the free financial management tool for small business owners and the self-employed that simplifies and de-stresses tax time for these workers.

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  • http://blog.optimalupgrades.ca Elie

    Great points, except for the last one. My accountant never files electronically for any of his clients, because he found the reverse to be true. There was a higher likelihood of being audited if you filed electronically than if you filed manually (Canada).

    I think part of the reason is that with electronic filing, you aren't submitting a lot of your verification paperwork (expense receipts, tax receipts, etc) and so Revenue Canada has a lower trust level that the reporting was done accurately. While you have to possess the verification in case you're questioned, it isn't there with the return, and people may be tempted to cheat a few dollars here and there.

    Oh, and my accountant is one of the founding members of a firm with about 30 staff, a mix of CAs and CMAs.

  • http://www.ryanhanley.com/about Ryan Hanley

    These tips are So important. Getting Audited by the IRS can spur other Audits such as Worker Comp and State Disability… Fraudulent or perceived fraudulent acts send up red flags and bring unwanted attention to your business.

    I would highly recommend being diligent we your business IRS dealings… seems obvious I guess…

    Ryan H, http://www.ryanhanley.com

  • http://GetYourBizSavvy.com/ GetYourBizSavvy

    Awesome tips. I need to actually bookmark this because I am just beginning to do my taxes. It is nice to know the mistakes before I made them!

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  • bobharris90

    Have you got a bunch of IDIOTS working there? ALL 7 items listed will only generate IRS letters asking for corrective action!

  • bobharris90

    GetYourBizSavvy, you don't need to bookmark this because they're wrong! None of these can LEAD to an IRS audit. They will only generate IRS letters asking for corrective action. It would have been more accurate of them to say “1 item that can lead to an IRS audit … filing your tax return”.

  • bobharris90

    None of these are GREAT points in the context of how they're presented. These points will only generate IRS letters for corrective action! And, if they had presented these points in that context, then this article would have been appropriate!

  • bobharris90

    You're right. These tips are important! BUT NOT in the context of how they're presented here! And, I don't [generally] agree with your comments about an IRS audit triggering Worker's Comp and State Disability audits, since these agencies don't share info with the IRS. A state audit may trigger those types of audits, but doubtful and IRS audit is going to.

  • http://Under30CEO.com Jared O'Toole

    Great tips! Seems like they may not directly lead to an audit although I don't know who that commenter is either. But either way good things to look out for because those mistakes happen a lot!

  • bobharris90

    Who I am: 1) A Tax Accountant with over 30 yrs. experience in tax and accounting. 2) An IRS Enrolled Agent, who passed on the first try. 3) A tax preparer and advisor with 350+/- clients throughout the U.S. That's who I am.

    Now, you can attempt to justify this article any which way you want [to cover your butt for letting it appear on your website], BUT in the context presented IT IS WRONG!

    Run it past an IRS agent and get their opinion!

    UNDER30CEO DOES THEIR FOLLOWERS A GREAT DISSERVICE!

  • bobharris90

    Who I am: 1) A Tax Accountant with over 30 yrs. experience in tax and accounting. 2) An IRS Enrolled Agent, who passed on the first try. 3) A tax preparer and advisor with 350+/- clients throughout the U.S. That's who I am.

    Now, you can attempt to justify this article any which way you want [to cover your butt for letting it appear on your website], BUT in the context presented IT IS WRONG!

    Run it past an IRS agent and get their opinion!

    UNDER30CEO DOES THEIR FOLLOWERS A GREAT DISSERVICE!

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