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RED FLAGGED TAX RETURNS.

RED FLAGGED TAX RETURNS
11 February, 2021

RED FLAGGED TAX RETURNS

Tax return filing is one of the most complicated and dreaded process of the year for any individual or company. In addition to this process if you owe money to government it is really annoying. But nothing can be compared to the feeling when you receive a notice from IRS that you are under audit as your return has been red flagged. IRS computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill.
Here is a list of few mistakes due to which your tax form can be red flagged: -

  • Discrepancy / Variances between (business) income and (business) expenses
IRS will respond when your reported income does not match with tax form income, similarly the same thing happens with businesses that report the expenses which makes no sense. Sometimes, they are finding people who are trying to take deductions for personal expenses in the name of business, for e.g.: - A musician can claim a guitar, but a painter buys the same for personal hobby cannot do the same. We need to understand the difference. Many times, these discrepancies result because of unreported income for actual expense incurred. There is always the chance that the difference is a result of accidents by employees or oneself hence we need to be very sure and double check before filing the tax forms.