10 Reasons Your Tax

Return Could Be Audited

1. Claiming large deductions

• The IRS knows how much the average taxpayer claims for major tax deductions such as– Charitable donations– Medical expenses– State income taxes

• If yours are significantly higher than average, it could be a red flag

• For example, most taxpayers who deduct charitable contributions donate between 2% and 3% of their income to charitable organizations

• So, if you earn $100,000 and donate $3,000, it would be considered “normal”

• However, if you earn $100,000 and claim a $15,000 charitable deduction, it may raise some eyebrows at the IRS

2. Home office deductions

• If you claim a home office deduction, the IRS may take a closer look at your return

• This is one of the biggest “red flag” deductions of all, since the definition of a “home office” is often misunderstood

Source: flickr user THOR

• In order to claim a home office deduction, a room (or rooms) in your home must be used exclusively for your business

• A computer cart in your living room doesn’t count

• An office that doubles as a guest bedroom also doesn’t count

3. Repeated business losses

• If you own your own business, the IRS assumes your goal is to make money (makes sense, right?)

• So, if you report business losses year after year, the IRS might take a closer look

• It’s especially a red flag if your business deals in cash (like a restaurant or vending business)

Source: wikipedia

4. Making lots of money

• Higher-income individuals tend to get audited more than those of low to moderate income

• And, those who earn very high incomes tend to get audited the most

source: 401kcalculator.org via flickr

• According to IRS data, only 0.4% of taxpayers who earn less than $200,000 per year and don’t run a small business get audited

• However, those who earn between $200,000 and $1 million have a 3.2% chance of an audit

• And, those who earn $1 million or more get audited more than 12% of the time!

5. Making no money

• Just as high-income taxpayers are at a higher risk of audit, so are people who have no income.

• According to IRS data, more than 3.4% of taxpayers with no adjusted gross income (AGI) were audited in a recent tax year

Source: 401kcalculator.org via flickr

6. Failing to report income

• When you receive a copy of your W-2 or 1099 form, so does the IRS

• If the income you report doesn’t match the IRS’s records, it is good cause for an audit

Source: 401kcalculator.org via flickr

7. “Creative” business deductions

• If you claim large deductions for business travel, meals, and entertainment expenses, it could catch the attention of the IRS

• Make sure you can document all of these expenses

Source: flickr user Nicole Tarazona

8. Using a bad tax preparer

• If you choose to hire a professional to do your taxes, make sure they are a reputable and experienced preparer

• Legally, you are liable for the information contained in your return, even if a tax professional filed it for you

Source: 401kcalculator.org via flickr

9. Making careless errors

• If you make a careless error on your tax return, it can raise a red flag

Source: 401kcalculator.org via flickr

• Types of careless errors to avoid include

• Entering the wrong Social Security number

• Misspelling your name or other identifying information

• Adding or subtracting numbers incorrectly

• Entering numbers wrong (ex. 1000 instead of 10.00)

10. You don’t think you should pay taxes

• Every year, there are people who claim that the income tax is illegal or unconstitutional, and refuse to pay

• Even if you feel this way, you are still legally responsible for paying your income taxes…or you could go to jail

If you’re worried about an audit

• Relax! Most audits are simply to verify certain information of your tax return that stood out to the IRS

• Many can even be handled by mail• Even “field audits” (in your home or business) aren’t

necessarily a big deal• For example, the IRS may simply want to verify that your

home office is in fact a home office

• As long as you can document all of your income and deductions, an audit shouldn’t be more than an inconvenience• So, make sure you save all of your documentation for

several years after you file your taxes

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