Tax Audits: Tax Preparation Pitfalls to Avoid
No one wants to be audited, and in fact, less than 1% of all taxpayers are audited. While there is no formula for determining who will or will not be audited, there are certain pitfalls Metroplex Wealth recommends you avoid to minimize the risk:
#1: Failing to Disclose All Income
Since businesses, employers, and financial institutions are all required to report their own income information, it’s very easy for the IRS to cross-reference and flag individuals who fail to report all of their income. Don’t be that guy. Report all of your income and you’re less likely to get audited.
#2: Filing a Return that Differs from Most in Your Tax Bracket
The IRS has a formula they call the Discriminant Information Function that evaluates the normal deductions, credits, and exemptions for taxpayers in various income brackets. If you file a return that deviates heavily from the norm in your tax bracket, this may sound an alarm for the IRS to conduct an audit on your account. Working with a trusted tax preparation specialist in Southlake will help you avoid these costly mistakes.
#3: Reporting Rental Property Losses
In most cases, if you own rental property, you cannot claim deductions on the losses. However, if you’re working more than 50% of your time on rental property investments or actively involved in managing rental properties, then claiming losses on the property is legal. Just be aware it could trigger an audit.
#4: Recent Divorcees’ Tax Returns Don’t Match
Recently divorced? Make sure you and your spouse are aligned on how you are reporting information; otherwise, you could trigger an audit when your reported information does not align.
As the year draws to a close and you begin thinking about filing your 2019 taxes, look to the tax professionals at Metroplex Wealth. We do more than tax preparation; we do proactive tax planning. This means we optimize your portfolio for the lowest taxes possible, allowing you to keep more of your wealth and pass it on to the generations to come. Call us today for a consultation with our team in Southlake, Texas.