Based on the odds alone, the chance that the IRS will audit your taxes is minimal. However, audits do happen. The chances of you receiving an audit can jump exponentially based on certain factors. It’s important to recognize the types of things the IRS looks for that can trigger an audit.
Red flags that can trigger a closer review
The IRS is always on the lookout for telltale red flags. Some of the warning signs which can lead to a more thorough review include:
- Significant deductions: Tax deductions are a valuable tool for lessening your tax burden. However, you don’t want to take too many deductions. If the IRS notices that you’ve deducted a higher amount or have taken more significant deductions than others in your tax bracket, they are likely to become suspicious.
- Tread carefully with business deductions: Entrepreneurship is encouraged by the number of deductions available to business owners. However, you should make any business-related deductions wisely. Depreciation recapture, business vehicle deductions, and other pitfalls could land you in hot water.
- Unreported income: Few things are more likely to get the IRS on the audit trail than instances of unreported or underreported income. If you receive tax documents from your employer, such as a W2, 1099, or other tax forms, it’s likely that the IRS has copies of these documents as well. You should report all income as listed on any tax forms you receive at the end of the year.
Being aware of these and other red flags can help you reduce the chances of an audit.
Keep things above board and maintain good records
The most effective means of reducing your audit risk is reporting your taxes honestly and maintaining good records. Doing so can help you defend yourself effectively should you ever have to face an audit. In any case, you should not attempt to resolve IRS issues on your own. A skilled legal professional can help you protect your interests.