Tax Audit Red Flags To Be Aware Of
BOSTON (CBS) – Most tax returns are handled by computers and there are formulas and averages for most of the categories. Most audits are simple paper audits where they send you a letter asking for supporting documentation.
So what may trigger an audit?
1. Not reporting all of your income: The IRS cross checks your income sources with 1099s and W-2s. If your income has dropped that may be a red flag.
2. Claiming large charitable deductions: The IRS calculated what the average donation is for a person in your income bracket. Any contribution over $250 you will need a letter from the charity.
3. Earning a bunch of money: Over $100,000. You are 5 times more likely to be audited if you make the big bucks.
4. Taking higher than the average deductions: If the deductions on your return are disproportionately large compared to your income, the IRS audit formulas will go “tilt”. So if you have large medical deductions be sure you can prove them if need be.
5. Home Office deduction: There is a new, simplified calculation for claiming a home-office deduction for 2013. Be realistic though with how much space you do use in your home.
6. Business meals, travel and entertainment: Schedule C is filled with deductions for the self-employed individual. And the IRS has figured out that often some self-employed individuals tend to claim excessive deductions.
7. Claiming 100% use of your car for business: If you are self-employed and use your car for business be honest with how much you actually use the car for business. Keep very good records of the miles you drive.
8. Cash businesses: If you have a cash-intensive business like an antique shop, junk shop, car wash, a bar, a hair salon, or a restaurant you are probably on the IRS’ short list!
9. Math errors: If you do your tax return in long hand, check your math and be sure to sign the return and put in the correct social security numbers. A sloppy return can trigger an audit.
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