As many Iowans crunch the numbers for their state and federal tax returns, CPA Bill Dendy says there are several things the IRS looks for that can prompt an audit. “Usually, it’s a simple mistake that created the audit,” Dendy says. “It’s usually something they could have avoided had they double-checked the work along the way. Inversions of numbers on the Social Security numbers or not reporting income that the IRS already knows about.”
Even if you’ve filled out your forms flawlessly, the size of the numbers can often draw a probing eye. “The more successful you are financially, the more likely you are to trigger an audit,” Dendy says. “About 1% of overall returns get audited. By the time you make $200,000, it’s tripled the odds of being audited, and by the time you make over $1 million a year, the odds are one in nine, you’re going to be audited.”
Filling out the tax forms can be confusing and Dendy says many people ignore deductions so they don’t get red flagged by the IRS. “I don’t believe we should leave any deductions on the table if we’re entitled to them,” Dendy says. “We get into gray areas where people are doing these second jobs that they’re looking to eventually make a sizable income, but in the first years, they’ll have losses and the IRS will disallow those losses unless you ran it as a business. That surprises some people along the way.”
Dendy says navigating the tax system isn’t easy and many people ignore deductions to keep under the IRS radar. He says don’t be afraid to ask for help.
By Karla James.