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IRS Audits – 10 Red Flags To Avoid

  1. Incomplete or sloppy returns.
    1. Make sure you sign your return.
    2. Check for math errors
    3. All names should match the SSN on the return
    4. Make sure you fill out all the required information.
    5. Check for any inconsistencies on the return.
  2. Unreported Income
    1. All W-2’s, 1099’s and 1098’s that are sent to you are also sent to the IRS. Check to make sure you have reported all income.
  3. High Itemized (Schedule A) items compared to income.
    1. Employee expenses- if you claim these make sure there are related to and necessary for your employment. Keep accurate records and receipts.
    2. Charitable Donations- Be sure to save your receipts and if it is extremely high you can even send them in with the return.
  4. Your federal and state returns do not match. Watch this because they do check.
  5. Rental Losses (Schedule E)
    1. Rental Losses are subject to a number of complex rules.
    2. Most rental activities are considered passive; therefore rental expenses are deductible only to the extent of rental income generated by these activities.
    3. Taxpayers with rental losses who meet certain conditions are permitted to deduct up to $25,000 excess rental losses.
  6. Schedule C (Self-employed)
    1. High expenses versus low income reported creating a loss. Make sure you keep accurate records, bookkeeping and receipts.
    2. If you are a wage earner with a business on the side reporting a business loss this increases the return being audited.
    3. It must be a legitimate business with in which you have a reasonable expectation of turning a profit. I have seen many situations where people claimed a business loss when the Schedule C itself should not have been filed because there was no legitimate business.
  7. Higher Income
    1. Individuals who make over $100,000 are audited at a higher rate than those between $25,000-$100,000.
  8. Lower Income
    1. If you income is statistically lower than the average in your occupation this could cause your return to be checked.
  9. Round numbers
    1. When claiming deductions the IRS is aware that it is improbable all deductions are round numbers.
  10. Dependents
    1. Check to see the name, SSN and DOB match.
    2. They must qualify to actually be your dependents, especially if you are claiming child credit or earned income credit.
    3. Dependents can only be claimed on one tax return. Make sure that no one else is claiming them.
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