SOME IRS forms attract audits. Merely filing them causes the Agency to look at your tax returns.
Here are some of them.
You may have had a side job that paid you more than $400 but you missed to report or did not receive because you moved. Failure to report 1099s activates IRS matching program that detects a missing 1099 or W2. It generates letter CP-2000 when IRS computers detect missing form 1099-MISC, 1099-R, Form 1099-C Cancellation of Debt, or any 1099 form.
Schedule C for Sole Proprietorship Business:
If you run a business as a sole proprietorship (as opposed to corporation or partnership), you need to file Schedule C. This form increases your chances of an audit. Any person who files Schedule C is about four times more likely to receive questions. Many audits that I handled for new clients over 40 years were caused by Schedule C. Bad form.
Schedule C for Uber, Lyft, or AirBNB:
Driving for Uber or Lyft or renting your residence to AirBNB generates Form 1099. IRS receives a copy of that form, so if your tax return doesn’t match the 1099 figures, it prompts IRS to send you a notice of mismatched numbers.
Schedule C for Hobby:
Filing Schedule C is bad enough. Claiming a loss is worse. Using Schedule C to deduct hobby loss is the worst. It’s like begging the IRS to come get you.
Form 5213 for Hobby Loss:
You may want to avoid an audit of your hobby loss by filing Form 5213 to prevent the IRS from auditing you for the first five years – a period typically used when transitioning a hobby into a business. This form creates a safe harbor for you to claim losses from your hobby-turned-business. However, once that five-year window is closed, IRS can come calling if you still incur losses.
Schedule C to Maximize the Earned Income Tax Credit:
IRS can determine if you file Schedule C with just the right amount to maximize your Earned Income Tax Credit. Some taxpayers find it interesting to get a credit in excess of $6,000. The IRS could also find your tax returns interesting for an audit.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at firstname.lastname@example.org.