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Red Flags | Invite For An Audit

  Sanjiv Gupta CPA  Published 
Red Flags | Invite For An Audit

One of the common questions asked by Tax Payers is “Can I get audited?” or “What can flag my tax return for an audit?”. These questions bug so many taxpayers that we are often bombarded with the same question via email and phone calls.

Good News | Less than two percent of taxpayers get audited a year. Your chances of getting audited increase with your income. How IRS selects tax returns for audit is “Top Secret” and I would assume that even the IRS employees don’t know the answer to that question. However, experts presume that it is a combination of multiple factors that may prompt your tax return for audit. You will need to have multiple flags in order to get audited – but you never know.

1. Making Calculation/Math Error(s): “This is simplest but one of the common flags for an audit,” says Sanjiv Gupta, CPA. Most taxpayers use computers these days and this reduces the risk of a math error. However, the software depends upon the data you enter. So if a moved a couple of zero’s here and there – you may be called for an audit. Sanjiv pointed out that common math errors typically time pressure. Folks trying to do their tax return at the minute are more prone to making a mistake.

2. Taking Abnormal deductions. How about $100,000 charitable donations from someone making $50,000 year – possible but outrageous. If something is out of ordinary, attach proof with your tax return.

3. Submitting inconsistent information. What happens if you report income of $25K but your employers report $45K? Audit, of course. Make sure information going to IRS from all places matches with numbers you put on your tax return. This is especially true if you were paid in cash or have any kind of reported income.

4. Making More Money. Yes – you have a better chance of getting audited if you make $200,000 or more. How much more you may ask? Recent IRS data shows that audit of taxpayers making $200,000 increased by 34& during 2010 tax year. Just imagine, how is it like if you are making over 1 Million dollars.

5. Filing a business return. Most businesses run into losses every now and then. However, if you show loss three out of five years than you are at higher risk of getting audited.

6. Taking home office deductions. This sounds like an easy deduction but big guys at IRS are looking out for home deductions.

7. Handwriting your return. Still, filing paper tax return? It is a well-known fact that handwritten tax returns have more errors than the ones generated by the computer. Guess what, IRS knows this too.