Tax Article Brief

IRS Audit Red Flags: The Dirty Dozen

Article Brief

The author of this article, Joy Taylor, is the Assistant Tax Editor for Kiplinger. In this article she discusses 12 reasons (making too much money, failing to report all taxable income; taking large charitable deductions, claiming the home office deduction, claiming rental losses, deducting business meals, travel and entertainment, claiming 100% business use of a vehicle, writing off a loss for a hobby activity, failing to report a foreign bank account, engaging in currency transactions, and taking higher than average deductions) why the Internal Revenue Service (IRS) would audit an individual tax return and ways to avoid being audited by the IRS. This article explains that only 1 percent of individual tax returns are audited because the IRS doesn’t have the man power or time to examine more returns and the only reason a tax payer should be concerned about being audited is if he/she submitted a falsified tax return.

The Dirty Dozen

Individuals earning more than $200,000 a year who file taxes have almost a 4% chance of being audited than individuals earning and filing less than $200,000. This number increases at least another 8% for Millionaire fliers. Does this mean that filers who earn less than $200,000 are never audited? Of course not, it just means the more income you report on your tax return, especially if it’s over $200,000 will likely mean an audit from the IRS.

Reason number two that will cause filers to be audited is not reporting all income. Every 1099 and W2 that is mailed to filers are also sent to the IRS so they know if an individual is not reporting all of his/her income. IRS computers will generate a statement (bill) when 1099 and W2’s are not matched. One way filers can prevent receiving a bill from the IRS, is to ensure the 1099 or W2 received is his/her and the information is correct on them.

Claiming large charitable deductions when you don’t have the income to match...