Friday, March 11, 2016

6 Things that can Trigger a Tax Audit

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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