Underreported income, large deductions and even a simple mathematical error can all draw the prying eyes of the Internal Revenue Service.
People across McHenry County and the nation in the coming weeks will begin filing their individual income tax returns ahead of the April 15 deadline. But after the paperwork is submitted, the IRS in rare instances will perform audits on individuals with questionable returns.
Records, receipts and documentation are always the best defenses against the IRS in those situations, according to area tax professionals.
“It’s the knowledge of what can keep you safe, how you document, and what the IRS expects in your documentation,” said Pixie Reay, owner of ABP Tax Service in Wonder Lake. “Keep all documents related to anything you are going to put on your tax return.”
IRS auditors trained to look for tax fraud audit fewer than 1 percent of returns. But individuals with an inaccurate return often face various fines and penalties.
Reay, who has owned ABP Tax Service for more than 20 years, said she has had only two clients subjected to an IRS audit. She recalled one elderly client who was audited for large medical expenses.
Reay immediately advised her to collect all the receipts and documents she had related to the expenses before she sat down with IRS agents.
“If the client knows what documents they need to have to prove what they put on their return, then it doesn’t matter,” Reay said. ‘It’s a little extra to pull those documents, but to me, that is the best way to protect a client from an audit.”
People who record large contributions, claim large deductions, underreport income or establish a questionable reporting pattern on their returns commonly trigger IRS audits, said Yvonne Cornett, who owns Onsite Accounting and Tax Services in Crystal Lake and St. Charles.
Self-employed individuals also can find themselves fielding questions from IRS auditors since they tend to make excessive business deductions on their Schedule C forms, she said.
“To avoid a tax audit, stay clear of items that may raise a red flag on your return, such as auto, travel, entertainment expenses and contributions,” Cornett said. “Take only deductions that you have receipts. Taxpayers have shown to take excessive deductions for these items.”
Onsite accountant Linda Farris, who has 16 years of tax experience, has found that people who try to file their returns by themselves can embellish numbers or inaccurately report a dependent’s Social Security number.
Accuracy is key, she said. The IRS independently verifies information detailed on returns and that’s often how audits start.
“The best thing is to be totally honest,” she said. “Don’t try to embellish your deductions because there is a matching process ... The people who falsify information are the ones who are caught.”