Practically everyone who files a tax return has at least fleeting concerns about an audit, but those of us with highly complex returns are more likely to be scrutinized by the IRS. In a recent article, Tax Audit reviews the most common flaws in a tax return that can lead to the return being flagged.
While an IRS audit seems like a dreadful event – somewhere between a root canal and exploratory surgery on the scale of “Things You Don’t Want to Happen” – it’s actually a fairly routine process, designed to simply recheck a return in case there are any errors or discrepancies. If your return is accurate and honest and you have all of your documents in order, then you don’t have anything to be concerned about, though it’s annoying nonetheless.
Sometimes audits are conducted randomly, but more often than not they’re performed because there is something about the return that the IRS finds inconsistent. Here are five reasons why a tax return could be flagged for an audit.
- Mathematical errors. A misplaced decimal point or a zero omitted in error will raise the IRS’s antennae. Even if it’s an honest mistake, you’ll still be on the hook for any money the IRS didn’t get – along with fees.
- Not reporting income. If you got cash-in-hand for work performed and failed to report it, your return will be flagged if the entity that paid you reported it to the IRS.
- Claiming questionable charitable deductions. If you received $65,000 in income and reported $40,000 in charitable contributions, it will look pretty suspicious to the IRS. Even if you did give a tremendous chunk of your earnings to charity, you absolutely have to have the proper documentation from a legitimate 501(c)3 organization.
- Claiming questionable business expenses. If you’re claiming nearly every meal at a restaurant or purchase from Office Depot as a business expense deduction, your return could be flagged, and you’ll have to justify every single purchase and produce receipts.
- Home office deductions. Just because you work from home either occasionally or exclusively doesn’t mean you qualify for a home office deduction. Unless you use your home office regularly and exclusively for work purposes (and good luck proving that if you don’t have the proper business licenses and permits), don’t bother.
TaxAudit: Reviews of Effective Strategies for Avoiding IRS Audits
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