Audit Red Flags


Here are some issues that may draw the IRS’s attention to a return.

  • Misreporting or not reporting income-income from W-2’s and 1099’s should be accurate.
  • Earning more that $200,000-the IRS is 4 times more likely to audit income between $200,000 and $1 million.
  • Big changes in income-major changes in income catch the IRS’s eye.
  • Unusually high charitable deductions-the IRS has been implementing stricter rules for documenting charitable giving.
  • Unusually low salaries-The IRS takes a close look at S corporation compensation, especially if the salary paid to an owner is suspiciously low.
  • The wrong social security number-Discrepancies between source documents and tax returns will often draw added scrutiny and possible rejection.
  • Hobby Losses -the IRS has very specific rules for what qualifies as a business and what’s just a hobby that happens to cost a lot of money.
  • Inconsistent alimony reporting-It’s easy for the IRS to determine if the claim matches what was actually paid.
  • Overly rounded numbers– A procession of suspiciously even figures draws the eye.You can round to the nearest dollar, but if an exact figure is available, that’s the best bet.
  • High meal and entertainment expenses– The IRS has a good idea of what most types of businesses spend on meals and entertainment.  Outsized deductions will draw their eye.
  • Owning a cash business– It’s easier for a business that deals in cash to hide or misreport income, so the IRS is more likely to examine the return of a person who owns one.

Though some of these are unavoidable, you can take steps to decrease the chances of being audited.


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