You’ve probably heard about an audit, but you may consider it as a concept that only applies to evil corporations and tax-evading, dishonest taxpayers. You would be right to think that. Those who belong to above categories should fear an IRS audit. But what about us, hardworking, honest American expats? Of course, no one is invincible from being audited, but because expats live and work outside the states, which makes it harder for the IRS to verify income, expats may face more scrutiny. The expat status alone could lead individuals to become more exposed of incorrect filings or tax evasions. Expat tax filing is certainly more complicated than a regular filing; thus, increasing the chance of an audit that much more likely. In the past, the Statute of Limitations for an audit was three, but it has now increased to six years, meaning that reviewing the past returns should also be considered important.
To avoid an audit is to file taxes correctly.
Even if you file according to the rules of the IRS, there still is a chance of an audit- the audit itself may be annoying, but the real problem would be the penalties and back taxes for incorrect filing. Here are four questions you should ask yourself to lower the audit risk.
What are my income sources?
It should be obvious that the purpose of an audit is to catch underreported gross income which lowers the tax liability. Therefore, including all income sources to report a correct amount of gross income is a key. Additionally, an overstatement of unrecovered cost or other basis is considered an omission of gross income, so any wrongful act to decrease the taxable income should be avoided.
Which documents should I keep track of?
Mistakes happen, and to minimize the slippage, you should keep track of all financial records. This includes bank statements, investment records, and pay stubs.
Am I filing out the right forms?
All the more forms need to be filled out when the tax situation is complicated. Often different deductions and tax credits require separate forms, meaning you must first understand what you qualify for; and second locate the right forms to apply for those benefits. Oh, and don’t forget about the forms required to comply with FATCA regulations.
Meet the filing deadline.
An airtight tax return is no use unless you actually file it on time. A missed deadline could lead to missed deductions and credits and increase the audit risk. Here are important tax deadlines to be remember in 2018.