Although there’s no sure way to avoid an IRS audit, these 6 red flags could increase your chances of unwanted attention from the IRS:
- Understand that the more income shown on your return, the more likely it is that you’ll be hearing from the IRS. We’re not saying you should try to make less money — everyone wants to be a millionaire, statistics have shown that the higher your income, the higher the percentage you will be audited. Keep in mind, if you are reporting all of your income and all of your expenses honestly and accurately, you will have nothing to worry about.
- The IRS gets copies of all 1099’s and W-2’s you receive, so make sure you report all required income on your return. IRS computers are good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill.
- Schedule C is a treasure trove of tax deductions for self-employed also a flag for an IRS audit. It’s a gold mine for IRS agents, who know from experience that self-employed sometimes claim excessive deductions and don’t report all their income. IRS looks at both higher-grossing sole proprietorship’s and smaller ones.
- The IRS is actively scrutinizing rental real estate losses. This is especially those written off by taxpayers claiming to be real estate pros.
- When you depreciate a car, list on Form 4562 what percentage of its use during the year was for business. Claiming 100% business use of an automobile is red meat for IRS agents.
- Failure to report gambling winnings can draw IRS attention. This is especially true if the casino or other venue reported the amounts on Form W-2G.
Those Are The Top 6 Red Flags To Trigger An IRS Audit
Accurate record keeping is essential for avoiding problems if you do get chosen for an IRS audit. Utilize bookkeeping or tax preparation professionals so you can make sure you are doing everything you can, correctly.