Tax season is here and an IRS audit is something that no one ever wants to hear. However, there are times when an audit can and is taking place. Are you ready for the IRS audit process? These are 10 IRS audit flags to look for to help you avoid being one of the unlucky ones this year that gets a visit from the IRS to audit your taxes.
The chances of being audited are 1 in 100 which is pretty low, but the chance of being auditing is enough to scare anyone. Random audits are not as random as many people believe. The IRS does have indicators or flags that will trigger an IRS audit. IRS audit tips are certainly helpful, but this is a chance to get ahead of the curve. These are ten of the reasons an IRS audit will occur for a tax payer in any given year.
1) substantial changes in income
Believe it or not a substantial change in your income could trigger an IRS audit for your taxes. The IRS stores historical data on income and a large increase in that income from one year to another will trigger an IRS audit.
2) under reporting or not reporting income
The IRS will receive copies of every W 2 that you receive along with 1099s. This means that every one that you receive should be reported on your taxes if you would like to avoid an audit.
The IRS doesn’t trust self-employment. Don’t take it personally. There are a lot of self-employed businesses that have owners that want to try to get away with something with the IRS and they are always on the lookout for funny business.
4) taking higher than average deductions
Deductions for taxpayers that itemize should be proportionate to your income. Deductions higher than your average income should have will cause a red flag to go up and an audit to occur. Make certain you keep receipts and documents for deductions taken.
5) large contributions to charity
Documentation is extremely important for charity contributions. Any contributions you make to charity that exceed $500 should have form 8283
6) losses for small business
The IRS has concerns for small business men and women that claim deductions for activities that turn out to be hobbies. They are looking for losses for small businesses with scrutiny and will flag a return for an audit
7) home office deduction
Home office deductions don’t include when you sit in the basement checking work email. Your basement or kitchen table doesn’t count as home office and the IRS will audit your return if you try to claim either. This is a deduction that many people want to use, but always misuse. In order to have this deduction the office must be for work only. Additionally, you can claim a percentage of rent, phone bills, utilities, real estate taxes, insurance and other reasonably related costs.
8) Large business meal entertainment deductions
Every meal you have cannot be deducted as business expenses. Large deductions for travel, meals and entertaining will flag your taxes for the IRS. If you want to claim a large deduction for business meal and entertainment, keep detailed records. Keep mileage logs and reasons for the meals. You should keep information about what was discussed. It’s better to have more than less.
9) business use of vehicle
If you are going to use the deduction of business use of your vehicle for 100% get ready to defend an IRS audit. There are not a lot of people who have one car used exclusively for business purposes. Therefore, an IRS audit will typically happen when this deductible is used.
10) Math errors
Math errors are one of the biggest reasons for an IRS audit to occur. Double check your numbers to make certain no errors occurred before you send your taxes in to the IRS.
These are ten reasons that an IRS audit will occur. You don’t necessarily need to run out and get a tax lawyer or tax attorney, but make certain that you are honest about what you file and keep great records. When an IRS audit occurs you will be prepared.