This time of year, tax audits are on everyone’s minds as we rush to compile financial paperwork and sit down for the task of completing our annual income tax returns. The ominous threat of the tax audit lurks in the background, waiting to jump out like a boogeyman if we make a mistake or miscalculate our tax liability. One of the reasons why so many people are nervous about a tax audit is because we have some ideas in our minds that might not be totally true, urban tax audit legends, if you will.
Clearing up some of those scary stories can help take away some of the trepidation that we feel by adding some degree of certainty about what our possible audit risks are.
For example, some people believe that filing with a lot of different deductions and credits can trigger suspicion and lead to an audit. This is not true. Tax credits and deductions are meant to be taken and are there to ease the tax burden on people and families who are doing something that the government wants to incentivize, like owning a home. Taking the tax credit is your legal right and there is no penalty for taking a credit that you truly qualify for. The key to taking a deduction with confidence is making sure you qualify and having the proper documentation to support the deduction, such as receipts for a business expense. Questions about audit risk or what to do when an audit notice arrives in the mail can be directed towards qualified tax law professionals.
Source: Yahoo Finance, “Five common myths about the dreaded tax audit,” Mandi Woodruff, Feb. 3, 2014.