The Top Red Flags for an IRS Audit

Your last day to file taxes is almost here. Hopefully by this point, you have already filed or are ready to do so. Of course, if you’re the type to worry, you may be spending lots of time checking and double-checking all of your paperwork and calculations to be extra sure you don’t have any trouble with the IRS.

 

To give yourself some peace of mind, take a look through this list to read about the things that are most likely to trigger an IRS audit. If you haven’t made any of the following mistakes, you should be good to go!

 

Bad Math
Whether you have prepared your taxes yourself or you’ve hired a tax preparer, you will be held legally responsible for any mistakes that occur on your tax forms. For this reason, it pays to double check a tax preparer’s math and to ask someone to double check your own math. Math errors can also include things as simple as typos, so be extra careful when checking everything over! The IRS will be comparing your forms against those sent in by your employer and computers will catch any numerical mistakes right away.

 

This should be something that factors into your choice of a tax preparer: if your tax preparer has a bad record of mistakes and misreporting, the IRS may already be paying extra attention to what they are doing, so be sure to check out your reporters credentials and be on the lookout for anything fishy.

 

High Income
Though there are many obvious benefits to having a higher income, if you have an income over $200,000, you will be almost four times likely to get a tax audit. If you do have a high income, make sure you have a thorough paper trail to substantiate any claims you make on your tax form. Double check that you have accounted for every source of income and that you can prove any online charity donations or other tax write-offs that you will claim.

 

Failure to Report a Source of Income or Foreign Bank Account
If you fail to report a foreign bank account containing more than $10,000 or any significant assets that are held abroad, you will be liable to pay fines. Similarly, if the amount you report does not match the amount evidenced by your 1099s and W-2s that are sent directly to the IRS, you will likely be contacted by the IRS.

 

Discrepancies from Last Year or From Similar Businesses
The IRS compares individuals and business owners to their peers to identify anything that is radically out of the ordinary. If you have a particularly good year, it pays to make sure you have the papers to back up your claims. Be particularly careful if, in addition to making more money this year, you also are trying to claim several credits or write-offs.

 

Odd Write-Offs and Credits
The IRS tends to notice a few types of claims in particular. If you try to claim business use of your vehicle, you will need to be able to substantiate this with evidence of miles driven and gas purchased. Be careful when identifying losses or business write-offs. If these losses or write-offs come from something that is more like a hobby, they won’t qualify for your income tax. For example, if you lost money when trying to sell your crafts and this is not a significant source of income for you, it will not qualify. Claims of large donations to charity are also likely to catch the IRS’s attention.

 

The IRS has said that faulty claims to the Earned Income Tax Credit cost the government $10 billion per year. Be sure to check the qualifying guidelines on the EITC before claiming.

 

Getting Help with the IRS
If you are concerned that you might have trouble this year with the IRS, consider getting help with your taxes with a service like Community Tax Resolution Service. Having a qualified professional help you can mean avoiding a lot of stress. Of course, if you do have trouble with the IRS, you may want to consult an attorney. Once you have, be prepared to cooperate with the IRS agent. Be prepared for their questions, have your paperwork ready, and keep calm! If your tax problems came from an innocent mistake, your cooperation will mean a speedier and easier time clearing up the problem.

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10 thoughts on “The Top Red Flags for an IRS Audit

    • Hi FTFF,

      That’s a pretty lofty goal. With tax laws changing every year and getting more complex with each revision I feel that truly understanding the system is impossible. The best anyone can do is work within the system and follow basic rules as to not raise any red flags. Thank you for stopping by and commenting.

  1. Unfortunately I’ve been lollygagging with our taxes but I’ve got them done for the most part. There’s still a few things to tidy up with my brokerage account. I really wish the tax code was much simpler and the everything was pretty much automatic. It’s such a pain to have to file taxes each year especially since things change every year.
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    • Hi JC,

      Prepping for taxes is never fun nor straightforward but it’s something we all must do. I just finished my taxes yesterday so don’t feel too bad about “lollygagging.” Thanks for sharing your thoughts.

  2. Thanks for sharing DivHut. All great tips. Hope everything is well with the new addition to the family 🙂 Thanks for sharing and keep up the hustle bustle. Financial Freedom. Take care bud.

    • Hi DH,

      Taxes are never fun and trying to figure things out on your own can certainly be challenging to say the least. I guess it’s all about not raising any red flags to minimize the chances of being audited and making sure the IRS gets something. I still can’t understand the people who simply don’t file. Talk about raising a red flag.

      All is going well with our new addition. Thanks for asking. My days are basically on a 24 hour clock as feedings among other stuff must be done every three hours or so. I can honestly say that I feel very content where I am with my son and wife by my side. Thank you for stopping by.

    • Hi AG,

      I have heard all the horror stories of going through an audit and it is something that I hope to never experience. Sometimes, even the most careful and best intentioned tax preparations can raise unintended red flags. Thanks for sharing your experience.

  3. This was the first year that I prepared my taxes without an accountant. I was happy when I came to the final conclusion, everything looked very similar to what the accountant had done last year. I went through the 1040 and made sure that I filled in the same fields they had populated with from my W2 last year. I don’t think I’m very likely to receive an audit from the IRS, but I always save all my documentation just in case!
    Debt Hater recently posted…Fund RecommendationMy Profile

    • Hi DH,

      I have been going to an accountant for many years and as long as I run my own business I’ll continue to do so. The tax laws are just so crazy and change frequently that it’s impossible to stay on top of everything unless it’s your profession of course. While the chances of receiving an audit might be rare it’s still an expensive and time consuming experience I would not want to have. Thanks for stopping by and sharing your thoughts.

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