Drawing Unwanted Attention: 8 Red Flags That May Trigger an IRS Audit

Two words often strike fear in the hearts of tax paying individuals: IRS audit. It’s often perceived that an audit is completely random, but in reality there are several red flags that trigger the IRS to take a second look. Keep in mind that these issues do not necessarily guarantee an audit, but rather might increase your chances. It’s never a good idea to falsify information to avoid these items, so it’s best to be straightforward on your tax returns and move forward accordingly should an audit occur.

Failing to report all of your income

You are sent forms annually outlining your income throughout the year, either in the form of a W-2 or a 1099. It might be tempting to exclude one of these totals to lower your total taxable income or you may honestly forget one of them, but this is a huge red flag for the IRS. They receive copies of your forms as well, so if something doesn’t match up, they will know.

Making a data entry error

As simple as it is, any errors in your tax return will be examined closely by the IRS. If you transpose a set of numbers or your accountant takes out one too many deductions, your return will be scrutinized. If you wrongly receive a refund based on fraudulent information and are discovered, you will have to pay it back.

Listing excessive charitable donations

There’s nothing wrong with deducting your contributions on your tax return, and it’s often a great idea to help offset your bottom line. Yet if you make a large number of donations, especially compared to your income, it will raise some questions.

Having a very high income

If you are very successful that’s obviously not something the IRS will punish you for, but keep in mind that any income over $200,000 has a tendency to be audited about four times as often than those with lower incomes.

Deducting your car

For those who are self-employed, the chances are that you use your car at least some of the time for your business. Yet if you deduct the entire cost of your car and claim that you use it for your work 100% of the time, you might get flagged.

Claiming deductions for a hobby

While a business has its own set of regulations that allow you to take a loss, your hobbies do not. Stamp collections or model airplanes cannot be deducted to the extent that it reduces your taxable income.  Other activities such as breeding horses also may raise suspicion.

You’re self-employed

Again, not every single business owner automatically gets a red flag on their tax return, but there is a greater chance that people can manipulate the numbers when they don’t have an employer.

You qualify for the Earned Income Tax Credit

Statistics point to tax returns being audited twice as often when they have the EIC listed. This is no reason to not claim this helpful credit, but be aware it could be a red flag.

If your tax return has in fact been audited and you need help navigating the process, contact The Law Office of Robert Boeshaar today. We help individuals and small businesses resolve their disputes with the IRS.

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Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.