How to Avoid Triggering an IRS Audit
The holidays are officially over and the occasional procrastination, dread, and fear of being audited by the Internal Revenue Service (IRS) is upon us now! You may already be receiving 1099 forms and other type of documents that instruct you to save for tax purposes only. For some, the only tax document that people are waiting for is the W2.
What is a W2?
The W2 form is document that notes the amount of money that has been dispersed to you or on your behalf from a person or company during a full calendar year. The purpose of this form is to help the IRS not only keep track of how much income a household brings in, but to also oversee how much money a business is writing off as an expense.
The amount of money that a household is declaring as income must be equivalent to the amount that the business or businesses are recording as capital expenses. If the amount does not exceed $300, then the business is not required to issue a 1099. However, the recipient of the funds is still required by law to report the income.
When Things Don’t Add Up
When these amounts don’t add up, that serves as a red flag to the IRS indicating that something is wrong and possibly illegal. Whether you as a United States (US) taxpayer receive multiple W2s and/or 1099s from different employers, it is the IRS’s job to find out if it’s accurate. It might take anywhere from one month to possibly even years from the original date of filing for them to verify it, but when they do, it gives them a reason to be suspicious of other tax filings. This is why it is always recommended to keep annual filings on record from anywhere between 5-7 years.
All Income Must Be Reported. No Exceptions!
At any rate, making sure that you report all of your income, even it you haven’t received a 1099 is crucial. There are some businesses that prefer to pay “under the table,” meaning issuing wages in cash. The misplaced logic here can often be that cash is not as easy to track as writing a check or transferring electronic funds.
It is most likely that the business that issued those funds will report to the IRS that they paid you a certain amount of money. At the end of the day, or should I say year, every business must account for their total annual expenses and income—whether it is electronically transferred or under the table.
Don’t Hide It. Tell the Truth and Report It
So the biggest way to avoid triggering an IRS audit is to simply report all of the income you’ve earned that tax year. This process can be easy for some taxpayers to manage and a bit more challenging for others to do, especially for entrepreneurs and freelancers. A good record keeping system is highly recommended for these professions because there needs to be a way to accurately track the income and expenses of a household and business entity.
Let Success Tax Relief Help
If you need help organizing your income or preparing documents for the upcoming tax season, consider calling on Success Tax Relief. We specialize in tax preparation services, IRS audits, installment agreements, Offer in Compromise, settling payroll taxes, dealing with unfiled tax returns, settling back taxes and more. We have over 30 years experience mediating to the IRS on behalf of our clients. So don’t delay. Let us help you now. Call 1-877-825-1179 to speak to one of our customer care service providers or contact us online right now!