Apr 15th, 2009
Ten tax audit flags to be careful of (very careful)
Every year there are only 2% of all returns audited by the IRS but I promise you, everyone in that 2% is absolutely miserable. There are several ways that your return might get flagged; there is the initial computer evaluation of it for accuracy, the computer evaluation based on a formula and finally the good old fashioned random bad luck of the draw. So what are some of the things that might trigger an audit?
1. Making more money
If you make more than 100k, you are at higher risk. Surprise, surprise. Then again, those that make over 100k probably aren’t complaining about it.
2. High charitable contributions.
This shouldn’t really surprise you. If Bob makes 50k a year and you make 50k a year, but Bob claims 1/3 of what you do for charitable donations, guess who is more likely to be audited?
3. Using round numbers
Dont round up. Dont round at all. It looks very suspicious if everything is neat little numbers. “I spent 5000 on my home office.” Yeahhhh…
4. Lying about income
The. IRS. Will. Find. Out.
5. Screwing up the forms
This is why it really makes sense to use a tax software. It’s dumb to make mistakes on a form that could flag you when there is so much good software out there to make life simple.
6. Home office / Self employment
The IRS loves to go after people that claim a lot of home office deductions. I actually went out of my way this year to not put income from this blog into a home office category, because the little bit of money it might have saved me is not worth the greater risk of being audited. Maybe next year when one of you donates me a ferrari for a work car, then Ill go ahead and get on top of that home office deduction.
7. Fuzzy Math
Add your numbers correctly. Better yet, lets talk again about that whole ‘tax software’ thing. Seriously though, if you add incorrectly, the IRS computer will catch it, and you get to board the train to auditville.
8. Mistyping Dependent information
Make absolutely sure the kids social security numbers are in there correctly, or the IRS computer will most definitely flag it, and you better believe they will follow up on that one.
9. Missing Information
If things are missing, it will get a personal review. Person reviews lead to audits.
10. Low income
If you are statistically lower than other people in your occupation, it will raise some major red flags.
Good luck everyone, ‘here’s to many happy returns!’
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- Taxes
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What are the chances of being examined? A total of 1,391,581 individual income tax returns were audited during FY 2008 (Oct. 1, 2007 through Sept. 30, 2008) out of a total of 137.8 million individual returns that were filed in the previous year. This works out to 1.0% of all individual returns filed (about the same as the audit rate for the preceding year). More info