Mark Steber, chief tax information officer at Jackson Hewitt Tax Services, joined Cheddar News to explain what common red flags to look out for that could trigger tax audits.

Closing Bell

What You Need to Know About IRS Tax Audits

Tax season is upon us. And every Monday here on closing Bell, we share tangible tax filing tips to make sure that you get the biggest refund check possible. And as you work on those taxes, you might be wondering if there's anything that you can do to avoid being audited. So today, we want to focus on potential red flags that can trigger increased scrutiny from the internal revenue service for the I R S. So joining me is Mark Stever, Chief Tax Information Officer Jackson Hewitt Tax Services. Mark. It's great to have you on the show here. And what are some common red flags that could trigger an audit? Well, audits come in all shapes and sizes and they're not something to be feared if you've been prepared and they range from the simple request from the I R s or the state for more information to something a little more invasive, perhaps a penalty and taxes to something really bad, the request to come down to the office. So there's something to be avoided. But all of those have one thing in common. There's something at the I R S on their computers that doesn't necessarily Jibe with what's on your tax return that was submitted. So I would start off by saying accuracy is critically in important, no guesstimating, no estimating if it doesn't match what's on the I R S systems, you need to explain it or they may ask about it. So if you have things on there that really, you know, are unusual that really don't really fit, you might want to make sure that you've got the documentation. For example, if you're a moderate income taxpayer, so you make 30 or 40 or 50,000 and you've got a $30,000 charitable donation. That's odd if you're self employed and have a side gig business, but have no expenses. That's also kind of strange, but it can help boost things like the earned income. So you need to have that understood if you're claiming independent, but somebody else may be challenging that and they may be claiming the dependent. You know, there may be a cross claim and the I R S may ask about that. So it's really a mismatch or things that don't tie the IR systems that generally cause their inquiry and have them ask you questions by, by a letter, they will never phone, they won't email and they're not going to text you. Mark. What about charitable donations? That's something that I don't think we've covered here yet. What do filers need to know about deducting charitable donor? Well, there's a great piece of the tax legislation that allows you to take cash or property donations on your tax return as a deduction at the full fair market value. If you're giving property, the bad news on that is, unfortunately, you have to be a person who itemizes, they put a short term ability in there during the pandemic, but that's now gone. But if you are a person who itemizes your deduction, that is you add up your mortgage interest, your property taxes, income taxes and charitable donations. And if it's bigger than the standard deduction, you get to take that and so much like my first guidance on having good documentation. If you're donating money to your church or synagogue or mosque or you're giving property to goodwill or any charitable organization, first, you want to make sure it's a proper charitable organization and that's listed at RS dot gov. But more importantly, you wanna keep detailed records of everything that you've given money checks, donations of cash, property, donated that car boat. You've seen that have a good valuation on that and put it on your tax return. Mark another quick question here. We don't have much time left. But what's the best way for you as a filer to organize this information? One to submit the tax return in an accurate manner and to, to prepare in case you are potentially audited? Well, it's very simple. I've stuck to the shoebox rule or the big envelope rule at my house for over 30 years have a centralized place and it really doesn't matter what you pick but keep all your documents together. I like a four part series. The income items. W twos, 10 99 your income from crypto self employment. The second section for your deductions or credits the benefits that you take on your tax return and have explicit details for what's on there. The third thing, life changes include any life changes for your pro and for the other, you always have to have another section to work that out. If you keep to that methodology here, when they come ask you're in good shape. Alright, organization is Key Mark Steber, chief Tax Information Officer at Jackson Hewitt Tax Services Mark. Thank you.