You missed to report all W-2s, 1099-MISC, 1099-INT or 1099-INT:
If you missed to report income from employment (W-2 with withholding) or independent contracting (Form 1099 without withholding), tough luck. You see, companies who pay you report W-2 and 1099s to the IRS. Your failure to report such income creates a mismatch with IRS computers. Result is a letter of unreported income via Notice CP-2000 that leads to internal review at the IRS. If the amount is attractive enough, you may get an invitation to a correspondence or office audit.
You missed to report gambling winnings:
The same problem occurs if you fail to report gambling winnings. IRS receives Form W-2G if you win over certain thresholds at the casino or hit the lottery. They have the info, so you must report.
You claimed itemized deductions… perhaps a little too much:
What you deduct must make economic sense in relation to what you earn. If you earn between $50,000 and $100,000, average charitable contribution in the U.S. is about $3,000. If you claim $9,000 of donations, you increase your chances of audit. Of course, this is issue can be mitigated if you disclose that you belong to the Adventist Church, Church of Latter-Day Saints, or other denominations who give tithes.
You took an early retirement and failed to pay early withdrawal penalty:
If you are under 59 ½ and withdraw from your retirement plan, make sure that consult your tax professional regarding an early withdrawal penalty of 10%. That’s only for federal rules. States also impose their own penalties.
TIP: I don’t recommend early withdrawals because total taxes and penalties can gobble up 50% of yur withdrawal. Exhaust other options with your tax professional. This is what you pay a CPA or Enrolled Agent for.
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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.
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He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits.” Readers may email tax questions to [email protected].