No one likes the thought of being audited. Even if they’ve
been honest in their reporting, being audited can be stressful and harrowing.
And, while tax audits are sometimes performed at random, they are, more commonly, performed
because of certain “red flags.” The IRS, in other words, looks for certain
markers or actions and, if it finds them, may decide to perform an audit. While
there’s no foolproof way to 100% avoid being audited, you can greatly reduce
your chances of being one of the unlucky few by knowing (and avoiding!) the
common audit triggers.
Not Reporting All
Income
If you’re not carefully reporting ALL of your income from
ALL sources, then you’re basically asking for an audit. The IRS knows every
employer who has filed a W-2 or a 1099 on you, so when you file and
conveniently leave out some sources of income, that’s a definite red flag for
the IRS. Make sure you are thoroughly reporting your income in its entirety;
otherwise, you’ll have a lot of explaining to do when the IRS comes calling!
Big Deductions
Making very big deductions is another way to raise a red
flag for the IRS. Whether or not deductions are considered “big” is based on
how it relates to your income, but if you’re trying to deduct half of your income
or more, you’re probably going to garner some unwanted attention with the
IRS. If you’re reporting accurately (and
you should always report accurately!), be prepared to explain yourself.
You’re also more likely to get audited if you’re claiming a
lot of business expenses. Obviously, you should only claim truly legitimate
business expenses, and make sure that you keep all receipts as proof of these
expenses. That way, if you do get audited, you’ll have proof working in your
favor.
Business Losses
If you own a business
that’s hit a rough spot, you may have to report business losses on your taxes.
If those losses are large, though, there’s a good chance you’re going to be
audited. As is the case with all things tax-related, have proof on hand to back
you up and keep you out of trouble with the IRS.
Bad Math
Finally, having simple errors on your tax forms can,
unfortunately, make you a likely candidate for an audit. Little things like
faulty addition or a wrongly placed decimal point can make the IRS curious and
cause them to do some investigating in the form of an audit! Since everyone is
capable of making mistakes, it’s best to either use software that (correctly!)
does the math for you or to hire a professional accountant who can avoid
errors.
If you can follow these simple tips, you can hopefully avoid
an audit, and, if one does happen, at least you’ll be prepared for it!
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