Mark Hauser is a Cincinnati-based business leader, financial services executive, and entrepreneur with decades of industry experience. A leader at HAUSER, Mark provides his team with essential leadership skills from his home office space in Kenwood Collection Tower outside of Northern Cincinnati, with additional offices throughout the country.
An industry leader and expert in private equity, Mark Hauser is no stranger to dealing with the IRS. Hauser notes that expert document organization, besides the appearance of optional yet professional representation, taxpayers can be positioned to state their case and succeed in any audit.
Hauser took time out of his busy career to discuss IRS audits, how they function, and what you must do to prepare.
Why Does the IRS Perform Tax Audits?
The Internal Revenue Service defines an IRS audit as reviewing or examining an organization or individual’s accounts. During this audit, the IRS will review financial information to ensure it is correctly reported according to tax laws. Essentially, the IRS will execute an audit to reduce the tax gap they’ve noticed, which is the difference between money received and money due from a taxpayer.
Some audits are randomly assigned while others are chosen because they conducted business with another individual under audit.
What Can Trigger an IRS Audit?
There are a few specific scenarios that could lead to the triggering of an audit from the IRS. Mark Hauser penned seven factors that can play a role, exploring them to help his followers better understand their risks.
- Failure to Report – Taxpayers who earn non-wage income must report all those earnings on their tax returns through Form 1099.
- Excessive Expenses – A business claiming deductions must have those deductions qualified as essential, or they run the risk of an audit. Taxpayers can end up facing increased audit risk over non-essential beliefs.
- Home Office Deduction – Taxpayers take home office deductions to reduce their taxable income. A home office deduction can trigger a response from the IRS.
- Schedule C-Loss – When self-employed taxpayers report an unusually high loss from their Schedule C, the agency may feel compelled to explore how the business thrives.
- Charitable Donations – Unusually high charitable donations could trigger a closer examination from the IRS, according to Mark Hauser.
- Incorrect Rounding Methods – Tax documents don’t typically work with rounded numbers, so taxpayers should always round to the nearest dollar rather than 100 dollars.
- Math Errors – The final reason for an audit triggered by the IRS is simple math errors. Careless errors can lead to an audit, so Hauser advocates working with a professional to reduce this exposure.
Audit Preparation
Mark Hauser knows that preparing for an audit can be scary, so he suggests working with a Certified Public Accountant. The length of an audit can depend on several factors, including the complexity of the business, the availability of the individuals involved, and the speed by which documents are exchanged.