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Not reporting income, significant credits could trigger an audit

On Behalf of | Jul 23, 2020 | Tax Controversies |

Most New York residents want to avoid dealing with the IRS more than they absolutely have to. As a result, the majority of taxpayers want to do their best to avoid an audit. While a closer look at a person’s tax return could happen for a variety of reasons, knowing a couple of the more common reasons could help taxpayers work to avoid too many questions.

A major red flag that could trigger an audit is if a person fails to report all of his or her taxable income. The IRS knows how much each person makes because the agency receives copies of W2 and 1099 forms. As a result, if a person does not report all of that income, the IRS will likely notice the discrepancy and want to take a closer look.

The IRS may also want to assess a person’s tax situation more thoroughly if the taxpayer claimed numerous deductions or credits. While many people validly qualify for deductions and credits, if those credits are disproportionately significant to the amount of money a person made, the agency will likely want to check that the credits are applicable. This does not mean that individuals should avoid claiming deductions for which they qualify because, with the right documentation, they can easily prove their qualifications to the IRS.

Of course, the IRS can start an audit for many more reasons, but if New York taxpayers receive notice of this type of action, they do not need to panic. In many cases, the IRS simply wants to take a second look at information to ensure its accuracy, and most people have the documentation to back up that information. Of course, that does not mean that this type of situation should be taken lightly, and concerned parties may want to consult with knowledgeable tax attorneys to ensure that they handle their cases appropriately.