IRS Audit Red Flags To Avoid As a 1099

Today I’m talking about…

Hi, Evelyn here again. It’s tax time. And nobody wants to be audited by the IRS. So today, I’ll just talk about some red flags you need to look at as you file your tax returns.

So to avoid a IRS audit what you have to do, is you have to make sure that the amount on your tax return matches your 1099. So you don’t want a 1099 that reports the amount that differs from what you actually put in your tax return, because the IRS computer will pick up on this. A lot of these audits starts with automated, they have a computer system, they have an algorithm they look at, and if your numbers are off from what they’re expecting, automatically you get sent a letter. So some of the things that you might want to look at are the 1099 miscellaneous you get.

You want to make sure that you report that as Schedule C income, and not other income, because what happens is, if you put that as other income that’s going to create a flag because the IRS expects to see some Schedule C income from your 1099. Another thing you want to look at is you want to enter income from each W2. Don’t combine them because combining is a trigger, a red flag, so every single document you answer, you want to answer that individually, don’t combine your income. And then you want to match rental payments, if you’re a business, to your landlord’s rental income because when they have a 1099 the IRS is going to try and match the two. And then also, this also depends if you’re an accrual basis or a cash basis customer. As a cash basis customer, you cannot deduct more than 12 months ahead.

So let me give you an example. So for example, if you paid 12-months rent in June of 2018 as a cash method tax payer, you can deduct the entire $12,000. That’s because you’re within 12 months, within the year. However, if you paid three years, for $7,000 per year, all you can deduct is $7,000 because the IRS does not allow you to deduct more than 12 months out. Another thing you might want to look at is when you get an IRS notice you want to make sure you respond to it right away. Waiting and thinking the IRS will forget all about it only makes things worse. A lot of audits start with a request for more information.

So when you give the IRS information they want, they leave you alone. But what happens is when you ignore it and you put it away, and you think it’s just going to go away, it only gets worse. So make sure you respond. If you don’t understand, talk to your CPA about it and say, “Hey I got this notice. I don’t know what it is. Can you help me figure it out?” A lot of times, when you have good documentation of why difference exists between what the IRS has in the system and what you have, that’s really more than enough to resolve the problem.

So if you want more of these kind of videos, you like what you see, go ahead and subscribe or like my video. I kind of look forward to seeing you in the next video. I hope you really enjoy it. Thank you. Bye.