I've used TurboTax for many years and our risk level was always green.
I work a full-time job my work rents a beauty salon and works part-time.
In the past her gross wages were always about double the net she actually made after factoring in all her expenses. This year she was forced to close for 4 months. We then got covid which resulted in her being closed another 3 weeks later in the year and then she was closed at least another week due to snow. So she missed five months plus of work. However during this time her expenses did not really change other than her laundry bill went down a little bit. Her rent, electric, cable, phone, water, sewer etc etc all stay the same.
She shows a loss for the first time ever this year.
The good news is she received PUA for four months. PUA was unemployment insurance for self-employed during covid who usually do not get UC. it consisted of the bas employment rate plus several hundred dollars more for a fixed period of time. That kept us whole. One thing I noticed they took out federal income tax on the PUA. However she still sent in estimated payments as though she was working 12 months not just seven.
Everything was going along great. Our refund consisted of a small cash amount plus the AOC credit for my daughter's education. It was about the same as we get every year. I realized I forgot to enter my wife's estimated payments. When I added that extra $2,000 , my refund increased by $2,000. This is the highest it's ever been.I 'm just wondering if somehow the whole covid PUA etc etc created an anomaly that turbo tax is flagging as high risk?
However,TurboTax is usually pretty smart and I would think it would have been programmed to understand the COVID situation. So my question is what the heck might be triggering this and what should I do to prepare for an audit or whatever.
I don't see where I entered anything wrong at this point she has her book with her envelopes and receipts. I'm not sure how to proceed or what to check.... If I knew specifically what TurboTax considered when assessing 'high risk' I might be able to double check those areas.
if they audit you what happens... do they just send you a bill and then you dispute it... I would assume the bill would tell you what they feel is wrong? I just wish I knew what what's causing the trigger because then I could double check it before I hit send.
Your change in audit risk may have to do with the fluctuation of income. Regarding what to do if you were audited, having your receipts and other supporting details to prove what was reported would be the main details to have maintained in your records.
Details to check would include such things as:
Reporting PUA received or estimates paid would not flag an audit by themselves.
If you were to get audited, if you had purchased support for audits, TurboTax can help. See: What's the difference between the Audit Support Guarantee and Audit Defense?
For more information, see: What the Coronavirus Relief Means for Self-Employed Taxpayers
Tax Guide for the Self-Employed: Everything You Need to Know