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Lamar, CO & La Junta, CO: Why Is My Return Being Examined by the IRS?

You filed your tax return and think that everything is okay.  Then, a few months later your get the dreaded letter with an IRS return address on it.  When you open the letter you learn that your return is being examined for any of the following reasons:

  1. Failure to report all your income

  2. You need to verify your dependents for Child Tax Credit

  3. Documentation is needed to claim the Earned Income Tax Credit

  4. Any other discrepancy the IRS finds resulting from information provided by third parties

These IRS examinations of income tax returns  are to ensure compliance with tax laws and to maintain the integrity of the tax system.  How can you avoid one of these examinations?

First, be sure to report all your income. It vital to keep good records of every place you work during the year.  If you move, immediately inform employers of any address change to ensure timely receipt of your W-2's.  As a self-employed person report all income received for product and services, including cash payments.  Your clients or customers could send in a 1099 for the payments they made to you.  The IRS used matching software to verify if what is on the tax return matches the amounts reported by third parties.

Second, if more than one taxpayer tries to claim a qualifying child for the Earned Income Tax Credit (EITC), the IRS will often examine a return an request documents supporting the claim for the credit.  If the IRS determines that a payment for EITC as made in error, the taxpayer that received the payment in error will have to pay the EITC credit amount back to the IRS, often with penalties and interest.

Third, high-income earners and those with significant business expenses also attract attention. If your lifestyle or deductions seem disproportionate to your reported income, the IRS may investigate to ensure that all income is accurately reported and that deductions are legitimate.

Last, charitable contributions that appear excessive relative to your income can also prompt an audit. The IRS wants to verify that these deductions are genuine and not inflated to reduce tax liability.

In summary, the IRS examines tax returns to detect discrepancies, ensure accurate reporting, and prevent fraud. By understanding these triggers, taxpayers can file more accurately and reduce the likelihood of an audit.

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