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INSOGNA CPA Ranks No. 126 on Inc. Magazine’s List of the Fastest-Growing Private Companies in Texas

Companies on the 2021 Inc. 5000 Regionals: Texas list employed more than 44,000 people.

Austin, TX, March 16, 2021 – Inc. magazine today revealed that Insogna CPA is No. 126 on its second annual Inc. 5000 Regionals: Texas list, the most prestigious ranking of the fastest-growing Texas-based private companies. Born of the annual Inc. 5000 franchise, this regional list represents a unique look at the most successful companies within the Texas economy’s most dynamic segment—its independent small businesses.

“We are excited to be recognized, for the 2nd year in a row, by Inc. Magazine”, said Chase Insogna, Founder and President of Insogna CPA. Our experienced team of professionals work diligently to serve our valued customers every day. This dedication to delivering great customer experiences has led to significant year-over-year growth at Insogna CPA”, he continued. “We are extremely proud of our team’s success and look forward to continue providing ongoing financial expertise to our valued customers.”

The companies on this list show stunning rates of growth across all industries in Texas. Between 2017 and 2019, these 250 private companies had an average growth rate of 210 percent and, in 2019 alone, they employed more than 44,000 people and added more than $9 billion to the Texas economy. Companies based in the largest metro areas—Dallas, Houston, and Austin—brought in the highest revenue overall.

Complete results of the Inc. 5000 Regionals: Texas, including company profiles and an interactive database that can be sorted by industry, metro area, and other criteria, can be found at https://www.inc.com/inc5000/regionals/texas.

“This list proves the power of companies in Texas no matter the industry,” says Inc. editor-in-chief Scott Omelianuk. “The impressive revenues and growth rates prove the insight and diligence of CEOs and that these businesses are here to stay.”

More about Inc. and the Inc. 5000 Regionals

Methodology

The 2021 Inc. 5000 Regionals are ranked according to percentage revenue growth when comparing 2017 and 2019. To qualify, companies must have been founded and generating revenue by March 31, 2017. They had to be U.S.-based, privately held, for profit, and independent—not subsidiaries or divisions of other companies—as of December 31, 2019. (Since then, a number of companies on the list have gone public or been acquired.) The minimum revenue required for 2017 is $100,000; the minimum for 2019 is $1 million. As always, Inc. reserves the right to decline applicants for subjective reasons.

About Inc. Media

The world’s most trusted business-media brand, Inc. offers entrepreneurs the knowledge, tools, connections, and community to build great companies. Its award-winning multiplatform content reaches more than 50 million people each month across a variety of channels including websites, newsletters, social media, podcasts, and print. Its prestigious Inc. 5000 list, produced every year since 1982, analyzes company data to recognize the fastest-growing privately held businesses in the United States. The global recognition that comes with inclusion in the 5000 gives the founders of the best businesses an opportunity to engage with an exclusive community of their peers, and the credibility that helps them drive sales and recruit talent. The associated Inc. 5000 Conference is part of a highly acclaimed portfolio of bespoke events produced by Inc. For more information, visit www.inc.com.

A Guide to Sales Tax for Online Sellers

Sales tax is not a cut and dry subject; on the contrary, it has a lot of moving parts. When it comes to sales tax for online sellers, however, things can get even more complicated.

Different states require a different tax on different items, and policies are always changing and adapting. Furthermore, within a state, there may be regions where sales tax rules vary from one state to another. Not taking the time to understand this can have serious repercussions, and potentially unnecessary cash out of your pocket.

Know Your State’s Laws

One of the tricky things about sales tax is the fact that individual states are permitted to set their own—there is no such thing as a national sales tax. This means that states are allowed to select which items to tax and how much tax to charge.

Furthermore, many states allow local areas to set their sales tax independent of the state. While it’s impossible to list each of the sales tax jurisdictions differing sales tax regulations, the main takeaway is that it’s important to research your state and region’s sales tax rules as there may be a considerable variation that you aren’t already familiar with.

Know Your Company’s Obligations

Online Sellers and local retailers in the USA are only required to collect sales tax when they have ‘Nexus’ in that state. A Nexus means a significant presence and refers to factors such as a physical location, personnel, affiliates, or other business activities.

You also need to know what items are taxable and which ones aren’t. While most states tax items such as clothing, textbooks, and groceries, others do not. This means that online Sellers and local retailers in different states or in different state localities can have different combinations of sales tax requirements.

Understand Filing Frequency

After you determine whether or not you have Nexus in a state you will need to register for a sales tax permit. When you do this, your state will inform you of your filing frequency. This means the frequency for filing your tax returns.

Typically the filing frequency will be monthly, quarterly, semi-annually, or annually. The frequency will be determined by the size of your Nexus and state’s rules. The more tax revenue you generate in a state, the more frequently it will be collected, as a general rule. The money is used for local infrastructure, so states would prefer that it be active instead of sitting in an account.

Avoid Fines and Penalties

Due to the variation in state sales tax, it can be easy to make an honest mistake. The two most common mistakes businesses make are not collecting sales tax when they should be, and not paying these taxes ontime. Once you realize how complex the process is, it’s not surprising why these mistakes are made.

Sales tax is due in some states on the 20th of the month. In other states, it’s due on the 15th, or the 23rd. Depending on your state it’s easy to get the dates mixed up. It’s also easy to confuse the amount of sales tax to pay as an online seller.

Mistakes like these can result in penalties and extra interest. However, if something falls through the cracks it’s always worth discussing this with your state’s tax authority as some are willing to waive innocent mistakes.

Know the Standards and Guidelines

Sales tax policy is always changing, so you need to stay up-to-date. In some cases, the sales tax rate changes, at other times, it’s the filing frequency. Sometimes a state will start taxing an item it didn’t tax before or reduce the number of items taxed.

When it comes to online sales tax, the policy is even more varied. Current guidelines say that sales tax should be paid at the point of sale, which means the buyer/end user. At present, this is the case, but it is subject to change at any point.

Hire a CPA

Outsourcing these complex tasks to a Certified Public Accountant (CPAs), especially when utilizing technology to streamline the calculation of your sales tax and whether Nexus is applicable or not, will save you time and money so you can focus on growing your business.

A CPA has the professional experience needed to organize your sales tax and ensure you pay the right amount at the right times. With so many moving parts when it comes to selling online, it is worth investing a little in a CPA to ensure you’re compliant and avoid penalties. Having professional help will ensure you are collecting from your customer and remitting the correct sales tax to the State, and avoid this money coming out of your own pocket.

Sales tax got you scratching your head? Avoid paying sales taxes out of your own pocket. Contact Insogna CPA today for ongoing accounting advisory.

Protecting Yourself from Scams, ID Theft and Cyber Criminals

Article Highlights:

ID Theft
What’s in Your Wallet or Purse
Phony E-mail
Pop-up Ads
Only Access Secure
Websites
Avoid Phishing Scams
Security Software
Educate Children
Passwords
Phony Charities
Impersonating the IRS
Back Up Files
If It Is Too Good to Be True

As much as the Internet has changed our lives for the good, it has also opened us up to threats from crooks from all over the world. They are smart and always coming up with a new trick to separate you from your hard-earned dollars or with an illegal way to use your stolen ID. They apply for loans and credit cards with stolen IDs, file fraudulent tax returns, make purchases with stolen credit card info, and tap into your bank account with stolen account information, and the list goes on. As a result, everyone needs to be very careful and mindful of the tricks used by these scammers to not end up becoming a victim.

This office is committed to using safeguards that protect your information from data theft. To further protect your identity, you can also take steps to stop thieves. This article looks at a variety of tricks and schemes crooks use to dupe individuals, along with actions you can take to avoid being scammed, keep your computer secure, avoid phishing and malware, and protect your personal information.

ID Theft – The primary information ID thieves are looking for is your name, Social Security number, and birth date. So, constantly be aware of where you use that information, and always question anyone's need for it when they ask. The fewer institutions that have your ID information, the lower the chances your data will be hacked. Treat personal information like cash – don't hand it out to just anyone. Social Security numbers, credit card numbers, and bank and even utility account numbers can be used to help steal a person's money or open new accounts. Every time you receive a request for personal information, you should think about whether the request is truly necessary. Scammers will do everything they can to appear trustworthy and legitimate.

Stolen IDs are also frequently used by cyber thieves to file fraudulent tax returns in your name, to take advantage of refundable tax credits such as the earned income tax credit, the child tax credit and the American Opportunity Education Credit, leaving you to deal with the IRS's identity theft protocol.

What's in Your Wallet or Purse– What is in your wallet or purse can make a big difference if it is stolen. Besides the credit cards and whatever cash or valuables you might be carrying, you also need to be concerned about your identity being stolen, which is a far more serious problem. Think about it: your driver's license has 2 of the 3 keys to your identity. And if you also carry your Social Security card, bingo! An identity thief then has all the information needed.

Phony E-mail – Be aware that an unsolicited e-mail with a request to download an attachment or click on a URL could appear to be from someone you know, such as a friend, work colleague or tax professional. It could be that their e-mail has been hacked and someone else is sending the e-mail, hoping to trick you into some scam. Be alert for suspicious wording or content, and don't click on any embedded links or attachments if there is any doubt.

Pop-up Ads – Don't assume Internet advertisements, pop-up ads, or e-mails are from reputable companies. If an ad or offer looks too good to be true, it most likely is not true. Take a moment to check out the company behind it. Type the company or product's name into a search engine with terms like “review,” “complaint” or “scam.”

Only Access Secure Websites – Only provide personal information over reputable, encrypted websites. Shopping or banking online should be done only on sites that use encryption. People should look for “https” at the beginning of a Web address (the “s” stands for “secure”) and be sure “https” is on every page of the site.

Avoid Phishing Scams – The easiest way for criminals to steal sensitive data is simply to ask for it. Learn to recognize phishing e-mails, calls or texts from crooks that pose as familiar organizations such as banks, credit card companies or even the IRS. These ruses generally urge taxpayers to give up sensitive data such as passwords, Social Security numbers and bank account or credit card numbers. They are called phishing scams because they attempt to lure the receiver into taking the bait.

For example, you might get an e-mail disguised as being from your credit card company asking you to verify your password. Companies will never do that because only you have that information, which is why you have to change it if you forget it.

Security Software – It is good practice to use security software. An anti-malware program should provide protection from viruses, Trojans, spyware and adware.

Set security software to update automatically so it can be upgraded as threats emerge. Also, make sure the security software is on at all times. Invest in encryption software to ensure data at rest is protected from unauthorized access by hackers or identity thieves.

You should never download “security” software from a pop-up ad. A pervasive ploy is a pop-up ad that indicates it has detected a virus on your computer. Don't fall for it. The download most likely will install some type of malware. Reputable security software companies do not advertise in this manner.

Educate Children – Today's children are probably more adept at using the Internet than their parents but are not mindful of the hazards. Educate your children about not giving out or posting online their Social Security numbers or birth dates. It may also be appropriate not to allow them to use a device that contains sensitive information such as tax returns, financial links, etc. It is not uncommon for crooks to use children's IDs to file fraudulent tax returns. Also, block your children from freely downloading apps to their mobile devices without parental supervision.

Taxpayers have reported an increase in e-file problems because their children's SSNs have already been used in a previously e-filed return, which results in the e-filed return being rejected.

Passwords – Use strong passwords. The longer the password, the tougher it will be to crack. Most sites require a minimum of eight characters, with at least one number and one character. Many sources suggest using at least 10 characters; 12 is ideal for most home users. Mix letters, numbers and special characters. Try to be unpredictable – don't use names, birthdates or common words. Don't use the same password for many accounts, and don't share them on the phone, in texts or by e-mail. Consider using a passphrase versus a password. And remember, legitimate companies will not send messages asking for passwords.

Phony Charities – The fraudsters pop up whenever there are natural disasters, such as earthquakes or floods, trying to coax you into making donations that will go into the scammer's pockets and not to helping the victims of the disaster. They use the phone, mail, e-mail, websites and social networking sites to perpetrate their crimes. The following are some tips to avoid fraudulent fundraisers:

Donate to known and trusted charities. Be on the alert for charities that seem to have sprung up overnight in connection with current events. Ask if a caller is a paid fundraiser, who he/she works for and what percentages of the donation go to the charity and to the fundraiser. If any clear answers are not provided, consider donating to a different organization. Don't give out personal or financial information—including a credit card or bank account number—unless the charity is known and reputable. You might end up donating more than you had planned on. Never send cash. The organization may never receive the donation, and there won't be a record for tax purposes. Never wire money to a charity. It's like sending cash. If a donation request comes from a group claiming to help a local community agency (such as local police or firefighters), ask the people at the local agency if they have heard of the group and are getting financial support. Verify the charity – Check out the charity with the Better Business Bureau (BBB), Wise Giving Alliance, Charity Navigator, CharityWatch or IRS.gov.

Impersonating the IRS – Thieves will try to impersonate the IRS in an attempt to frighten you into making a quick payment, without checking on the validity of you owing any taxes.

The very first thing you should be aware of is that the IRS never initiates contact in any other way than by U.S. mail. So, if you receive an e-mail or a phone call out of the blue with no prior contact, then it is a scam. DO NOT RESPOND to the e-mail or open any links included in the e-mail. If it is a phone call, simply HANG UP.

Additionally, it is important for taxpayers to know that the IRS:

Never asks for credit card, debit card or prepaid card information over the telephone. Never insists that taxpayers use a specific payment method to pay tax obligations. Never requests immediate payment over the telephone. Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement action involving IRS tax liens or levies. Some scammers even threaten immediate arrest if the payment is not made immediately – don't be bullied by these criminals.

When in question, never make tax payments or provide any information without calling this office first.

Back Up Files – No system is completely secure. Back up important files, including federal and state tax returns, business books and records, financials and other sensitive data onto remote storage, a removable disc or a back-up drive.

If It Is Too Good to Be True, It Probably Isn't – Many e-mail scams are based around supposed foreign lotto winnings, foreign inheritances and foreign quick-buck investment schemes. Don't let the lure of the dollar signs cloud your better judgement. The only one that makes out in these instances is the cyber crook.

Please call this office if you have any questions.

Gift and Estate Tax Primer

Article Highlights:

Exemptions from Gift and Estate Taxes
Annual Gift-Tax Exemption
Gifts for Medical Expenses and Tuition
Lifetime Exemption from Gift and Estate Taxes
Spousal Exclusion Portability
Qualified Tuition Programs
Basis of Gifts

The tax code places limits on the amounts that individuals can gift to others (as money or property) without paying taxes. This is meant to keep individuals from using gifts to avoid the estate tax that is imposed upon inherited assets. This can be a significant issue for family-operated businesses when the business owner dies; such businesses often have to be sold to pay the resulting inheritance (estate) taxes. This is, in large part, why high-net-worth individuals invest in estate planning.

Exemptions – Current tax law provides both an annual gift-tax exemption and a lifetime unified exemption for the gift and estate taxes. Because the lifetime exemption is unified, gifts that exceed the annual gift-tax exemption reduce the amount that the giver can later exclude for estate-tax purposes.

Annual Gift-Tax Exemption – This inflation-adjusted exemption is $15,000 for 2018 and 2019 (up from $14,000 for 2013–2017). Thus, an individual can give $15,000 each to an unlimited number of other individuals (not necessarily relatives) without any tax ramifications. When a gift exceeds the $15,000 limit, the individual must file a Form 709 Gift Tax Return. However, unlimited amounts may be transferred between spouses without the need to file such a return – unless the spouse is not a U.S. citizen. Gifts to noncitizen spouses are eligible for an annual gift-tax exclusion of up to $155,000 in 2019 (up from $152,000 in 2018).

Example: Jack has four adult children. In 2019, he can give each child $15,000 ($60,000 total) without reducing his lifetime unified exemption or having to file a gift tax return. Jack’s spouse can also give $15,000 to each child without reducing either spouse’s lifetime unified exemption. If each child is married, then Jack and his wife can each also give $15,000 to each of the children’s spouses (raising the total to $60,000 given to each couple) without reducing their lifetime unified tax exemptions. The gift recipients are not required to report the gifts as taxable income and do not even have to declare that they received the gifts on their income tax returns.

If any individual gift exceeds the annual gift-tax exemption, the giver must file a Form 709 Gift Tax Return. However, the giver pays no tax until the total amount of gifts in excess of the annual exemption exceeds the amount of the lifetime unified exemption. The government uses Form 709 to keep track of how much of the lifetime unified exemption that an individual has used prior to that person’s death. If the individual exceeds the lifetime unified exemption, then the excess is taxed; the current rate is 40%.

All gifts to the same person during a calendar year count toward the annual exemption. Thus, in the example above, If Jack gives one of his children a check for $15,000 on January 1, any other gifts that Jack makes to that child during the year, including birthday or Christmas gifts, would mean that Jack would have to file a Form 709.

Gifts for Medical Expenses and Tuition – An often-overlooked provision of the tax code allows for nontaxable gifts in addition to the annual gif-tax exclusion; these gifts must pay for medical or education expenses. Such gifts can be significant; they include

Tuition payments made directly to an educational institution (whether a college or a private primary or secondary school) on the donee’s behalf – but not payments for books or room and board – and
Payments made directly to any person or entity who provides medical care for the done.

In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursements to the donee do not qualify.

Lifetime Exemption from Gift and Estate Taxes – The gift and estate taxes have been the subject of considerable political bickering over the past few years. Some want to abolish this tax, but there has not been sufficient support in Congress to actually do that; instead, the inflation-adjusted lifetime exemption amount has been increasingly annually. In 2019, the lifetime unified exemption is $11.4 million per person. By comparison, in 2017 (prior to the recent tax reform), the lifetime unified exemption was $5.49 million. The lifetime exemption for the gift and estate taxes has not always been unified; in 2006, the estate exclusion was $2 million, and the gift exclusion was $1 million. The tax rates for amounts beyond the limit have varied from a high of 46% in 2006 to a low of 0% in 2010. The 0% rate only lasted for one year before jumping to 35% for a couple of years and then settling at the current rate of 40%. This history is important because the exemptions can change significantly at Congress’s whim – particularly based on the party that holds the majority.

Spousal Exclusion Portability – When one member of a married couple passes away, the surviving member receives an unlimited estate-tax deduction; thus, no estate tax is levied in this case. However, as a result, the value of the surviving spouse’s estate doubles, and there is no benefit from the deceased spouse’s lifetime unified tax exemption. For this reason, the tax code permits the executor of the deceased spouse’s estate (often, the surviving spouse) to transfer any of the deceased person’s unused exclusion to the surviving spouse. Unfortunately, this requires filing a Form 706 Estate Tax Return for the deceased spouse, even if such a return would not otherwise be required. This form is complicated and expensive to prepare, as it requires an inventory with valuations of all of the decedent’s assets. As a result, many executors of relatively small estates skip this step. As discussed earlier, the lifetime exemption can change at the whim of Congress, so failing to take advantage of this exclusion’s portability could have significant tax ramifications.

Qualified Tuition Programs – Any discussion of the gift and estate taxes needs to include a mention of qualified tuition programs (commonly referred to as Sec 529 plans, after the tax-code section that authorizes them). These plans are funded with nondeductible contributions, but they provide tax-free accumulation if the funds are used for a child’s postsecondary education (as well as, in many states, up to $10,000 of primary or secondary tuition per year). Contributions to these plans, like any other gift, are subject to the annual gift-tax exclusion. Of course, these plans offer tax-free accumulation, so it is best to contribute funds as soon as possible.

Under a special provision of the tax code, in a given year, an individual can contribute up to 5 times the annual gift-tax exclusion amount to a qualified tuition account and can then treat the contribution as having been made ratably over a five-year period that starts in the calendar year of the contribution. However, the donor then cannot make any further contributions during that five-year period.

Basis of Gifts – Basis is the term for the value of an asset; it is used to determine the profit when an asset is sold. The basis of a gift is the same for the giver and the recipient, but this amount is not used for gift-tax purposes; instead, the fair market value is used.

Example: In 2019, Pete gifts shares of stock to his daughter. Pete purchased the shares for $6,000 (his basis), and they were worth $22,000 in fair market value when he gifted them to his daughter. Their value at the time of the gift is used to determine whether the gift exceeds the annual gift-tax exclusion. Because the gift’s value ($22,000) is greater than the $15,000 exclusion, Pete will have to file a Form 709 Gift Tax Return to report the gift; he also must reduce his lifetime exemption by $7,000 ($22,000 – $15,000). His daughter’s basis is also equal to the asset’s original value ($6,000); when she sells the shares, her taxable gain will be the difference between the sale price and $6,000. Thus, Pete has effectively transferred the tax on the stock’s appreciated value to his daughter.

If Pete’s daughter instead inherited the shares upon Pete’s death, her basis would be the fair market value of the stock at that time ($22,000) is she sold them for $22,000 she would have no taxable gain.

This is only an overview of the tax law regarding gifts and estates; please contact us for further details or to get advice for your specific situation.

What Are the Differences Between an IRS Tax Lien and a Tax Levy?

If you’re reading this, the chances are high that you’re one of the many, many people who have received a notice from the Internal Revenue Service. Some level of correspondence with the IRS is natural ‒ particularly leading up to and in the immediate aftermath of tax season. But if you’ve received notification that the government is about to file a tax lien or tax levy against you, suddenly you’re talking about an entirely different ballgame.

But the most important thing you can do at this point is stay calm. Yes, both of these notices mean that your financial situation has just gotten significantly more complicated. But you do have rights in each scenario that you would do well to protect at all costs.

What Is an IRS Tax Lien?

An IRS tax lien is a very specific type of claim that the government (in this case, the Internal Revenue Service) makes on your property. That property can include but is not limited to real estate and other types of assets. Typically, this is something that occurs when you’re past due on your income taxes and you’ve failed to make proper arrangements to get yourself back up to date again.

A tax lien can affect you in a number of different ways, all of which are less than ideal. Even though tax liens no longer appear on your credit report, your credit rating will still suffer ‒ thus harming your ability to get a loan or secure new credit for your business. Tax liens also usually appear during title searches, which can impact your ability to sell your house or refinance the mortgage you already have.

What Is an IRS Tax Levy?

A tax lien is essentially the first part in a two-step process. That second step takes the form of a tax levy, which involves the actual seizure of the property in question in an effort to pay the tax money you owe. Via a tax levy, the IRS can do everything from garnish your wages, seize assets like real estate or even take control of your bank accounts to get their money.

At the very least, you’re likely to go through wage garnishment ‒ meaning that you’ll be taking home far less money at the end of the week in your paycheck. A 21-day hold might be placed on your bank account in an effort to encourage you to “work things out,” and if you don’t, they may even try to seize your home as a last resort.

Luckily, there are a few things that the IRS CAN’T seize even by way of a tax levy. These include things like unemployment benefits, certain pension benefits, disability payments, workers’ compensation and others.

What Can I Do About Them?

Thankfully, even in the unfortunate event of a lien or levy, you do still have some options available to you.

More than anything, if you CAN pay your tax bill, you SHOULD pay your tax bill. If necessary, get on an IRS payment plan to help you get back up to date. Yes, your past due balance will continue to accrue both interest and penalties until you’ve paid it off. But the choice between paying interest and losing your house isn’t really a choice at all.

It’s also important for you to actively work to protect your rights if you feel it necessary to do so. After receiving either a lien or a levy notice, you can always file an appeal with the IRS Office of Appeals if you feel you’re being treated unfairly. It is within your right to ask for a conference with the IRS agent’s manager so that your case can be reviewed by a fresh set of eyes. If nothing else, this is a great way to make sure that your side of the story is known.

You can also apply for a Withdrawal of the Notice of Federal Tax Lien, which will remove the public notice of a tax lien filing. If the IRS has notified you that any of your property is about to be seized, you can file something called a Certificate of Discharge. This will remove the property in question from the effects of the tax lien, allowing you to sell something like your home (or another asset) without worrying.

All of this can be confusing and stressful. Working with a seasoned tax professional can take negotiating with the IRS off your hands.

A Government Shutdown Isn’t Going to Save You from an IRS Audit

Yes, it's true that we're just coming out of the longest government shutdown in the history of the United States. It will take many government agencies – including the Internal Revenue Service – a significant period of time to get back up to speed. But if you think that all this means that the chances of your getting audited are lower than ever, you're going to want to think again.

According to one recent study, the IRS audited about 0.6 percent of individual tax returns in 2016, which means that your chances of getting that unfortunate letter in the mail were about one in 160. When you expand the definition of a traditional audit to include all of the other types of notices that you may receive to re-examine your taxes or provide backup documentation, for example, that number jumps to about 6.2 percent— or roughly one in 16.

So not only were your chances of getting audited always higher than you thought, but a government shutdown isn't going to prevent this particular train from running on time. There are a few common IRS audit red flags in particular that you’ll want to know more about as April approaches once again.

The Dreaded Math Errors

A lot of people don’t realize just how much of the IRS’s own processes are automated. When you file your income tax return, that information gets entered into a computer, and a lot of the processing is done before a human ever looks at it — if one ever comes into contact with your return at all.

Therefore, one of the major red flags that will certainly trigger an audit are math errors, because a computer doesn’t care whether the government was shut down or not. A math error is a math error, and if you make one (or multiple), it’ll send up a red flag within the IRS’s system, and an automated notice will likely be issued as a result.

How You Make Your Money

The people who work for the IRS aren’t amateurs; they know that certain types of industries feature more instances of unreported cash earnings than others. This is why another one of the major red flags that could see you on the receiving end of an IRS audit has to do with the industry you’re operating in to begin with.

If you work in the restaurant industry where cash tips are common, for example, you are probably always going to garner more attention from IRS professionals than someone who may have a more rigid salary. Simply being a part of these types of industries automatically raises your odds of being audited, and no government shutdown is going to change that.

Earned Income Tax Credit Audits

In 2018, the IRS actually came right out and admitted that people who claim the Earned Income Tax Credit are twice as likely to be audited than those who don’t. A large part of this comes down to the fact that people sometimes take this credit who shouldn’t, and it costs the United States government about $10 billion per year.

At this point, it’s important to note that taking this credit intentionally when you shouldn’t is fraud, and that is not a situation you want to find yourself in. If you can prove that you took the credit by accident, you don’t necessarily have anything to worry about. But you’ll likely still be audited, and you’re certainly going to have some explaining to do.

Large Charitable Contributions

Finally, one of the biggest red flags that the IRS always looks for when determining whom to audit ultimately comes down, not to charitable contributions as a concept, but to significantly large contributions under peculiar circumstances.

When viewing charitable contributions, the IRS always looks at the amount you gave relative to the overall amount you made during a year. The IRS definitely knows, on average, how much people in certain income brackets are likely to donate. Sure, there are always special circumstances – but if you give two years’ worth of donations in a single year in an effort to maximize the deduction you can take, you’re almost always going to attract the type of attention you don’t necessarily want.

Provided that you’ve got the documentation to back up your donations, you have absolutely nothing to worry about. But a lot of people try to game the system by saying that they gave X amount of dollars in one year when they really gave that money over the last few years, and that is something the IRS will try to put a stop to.

An audit isn’t necessarily a bad thing, especially if you have the documentation to support every move you made and why it was the right one for you at the moment. But again, don’t assume that the government shutdown means that your chances of an IRS audit are practically zero. They never were, but they certainly aren’t now, which is why you’ll always want to make sure that you’ve crossed your T’s and dotted your I’s before you submit your tax return information this year.