Do you know the scary thing about filing taxes and returns? Its IRS Audits. Trust me, you don’t want to receive the notification that you’re being audited. According to this taxprotoday article, the IRS audits are just .5% of tax returns and there are 12 “red flags” to look after:
Misreporting or not reporting income:
The first and the most obvious red flag that can get you audited by the IRS. You should always report your income fully with all the details and not leave anything out.
Earning more than $200k:
You legitimately can be earning that much but chances are that you aren’t. To the IRS that’s a flag that raises concern and they just want to make sure that everything is in order.
Big Changes in Income:
This could mean that you’re getting income from some illegal means or you’re doing something on the side that you haven’t reported. Either way, this is a red flag.
Unusually high charitable deductions:
Charitable deductions are fine but if the number is very large then that can raise some flags for the IRS.
Unusually Low Salaries:
Just as big incomes can raise some flags, the same way low income can raise some IRS concern as well. If the amount is so low that survival is impossible, then IRS will definitely be interested in a audit because you’re hiding something.
Wrong Social Security:
We don’t even need to explain this. This is an obvious red flag, not to mention illegal. If you have put the wrong social security number then that is a huge red flag for the IRS.
If you’ve listed losses under hobbies then that is a red flag. In most cases, it is the other way around but if there are losses and in substantial amounts then the IRS will be interested to know more.
Inconsistent Alimony Reporting:
If you pay alimony then you need to make sure that you put all the up to date records and information along with it. Otherwise it will be taken as tax evasion and you will be audited.
Overly Round Number:
Rounding off numbers is fine but if the margin of the round up is too big then that is a cause of concern for the IRS, it can be taken as you’re hiding something.
Big Meals and Entertainment Expenses:
Another popular tax evasion trick is to put huge numbers in meals and entertainment expenses. If your expenses are of a similar number in magnitude then you will be audited by the IRS.
Owning A Cash Business:
This means that there is a lot of opportunity for you to launder money and evade taxes. Even if you are legitimate, the IRS will make sure that it is so and nothing illegal is going on.
Home Office Expenses:
For most independent workers, home offices consist of a computer and some very basic furniture. If the number for these is high, then you will be audited because you are spending more than you need to.