Ten IRS Tax Audit Red Flags

I’ve been doing my own taxes since I was 16. It’s really not that hard when your taxes aren’t too complicated. That and I’m just too cheap to hand someone money to do what I can do on my own. I must be doing it correctly since I’ve never been audited, but today I am doing some community service and pointing out ten red flags that will get the IRS to audit your taxes.

Statistically, getting audited is a pretty rare event.  Only about 1.11% of all tax filers are every audited, but if you happen to do some dumb things, you raise those odds dramatically.

No matter who prepares your taxes you are ultimately responsible for what gets submitted to the IRS. It doesn’t matter if the tax preparer was shady or if you miraculously found some extra receipts to submit to the IRS.  If you don’t want the IRS popping up at your door, don’t do anything below.

  1. You Don’t File At All
    Big red flag, Wesley Snipes. You gotta file.  No one says that you have to file by April 15, but you do have to file.  Here’s a secret that I’ll share.  I always get money back and have actually waited two years to file some of my taxes.  There is no penalty for filing late if you are due a return.  I used that money to pay off one of my student loans. However, if you owe, you should at least file an extension.
  2. “Forgetting” Some Income
    Woopsie, I forgot about that W-2, or the 1099-INT, or whatever.  Nope, won’t work.  If you conveniently “forget” to include some income, the IRS might think that you’ve “forgotten” more income as well.
  3. Using The Wrong Social Security Number
    This is always the one that pops somewhere near the top of the list every year.  Double check the Social Security numbers of everyone on your filing.  Your elderly mom might have gotten the numbers mixed up, so look at her actual Social Security card.
  4. You Own A Cash Business
    Just like the hooker we discussed in the last post, you should file taxes if you run your own business.  If your business primarily deals in cash, it’s pretty easy to skim a little off the top thinking that no one will notice.  If your business does nothing but lose money for years, count on a knock on your door at some point.
  5. You Make $200,000 Or More
    Yeah, life is hard as a six-figure earner.  It’s even harder than you think!  While the risk of being audited is low, it increases significantly as your income increases.  If you make $200,000 or more per year, the audit rate increases from 1.11% to 3.93%.  By the time your income increases to $1,000,000 per year, the audit rate increases to whopping 1 in 8 (12.5%)!
  6. You Are Very Charitable
    It’s nice to give money to charity, but if it looks like you’re giving away the farm, the IRS won’t be too understanding.  Generally, you can slide on contributions lower than $250, but anything above that, you should have a receipt for and be able to substantiate in case they ask.
  7. You Claim A Home Office
    As the lines of work time and home time get blurred, you might be tempted to claim a part of your home as an office and snag a deduction. No so fast, Batman! The IRS is pretty strict about this one.  Your space has to be dedicated full-time to work or your deduction will get slashed.  As much as I like typing this stuff out from the confines of my side of the bed, alas, I can not deduct it.  Bummer.
  8. You Own Rental Property
    This one is going to be sticky for me this year.  My rental property is a loss (yippee!) that will push my liability downward. As more people get into the real estate rental income game, many realize that you can deduct up to a $25,000 loss from your income.  The problem is that if you hardly participate in managing the property or if the vast majority of your income isn’t from real estate, they might ding you for this.
  9. You Acquired More Children
    I have never in my life claimed the Earned Income Tax Credit, and I never will.  I make way to much, oh, and I don’t have kids.  Some clever people have been known to “acquire” a dependent or two around tax time in order to claim this refundable tax credit.  While you might love your neighbor’s kids like your own, you can’t really claim them just for tax purposes, okay?
  10. You Can’t Do Math
    Last on the list is just sloppy work.  Invest in a calculator when doing your taxes. Sloppy addition and subtraction can land you in the audit list.  It pays to slap down $15 for a calculator for this purpose.  Don’t let forgetting how to add with decimals be the reason why you get an audit letter in the mail.

Listen, doing your taxes really isn’t that difficult, and honestly, only 1.6 million returns of 141 million filed in 2010 were audited.  If you are uncomfortable doing your own taxes, take advantage of the multitude of different software out there and just GET ‘ER DONE!

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9 thoughts on “Ten IRS Tax Audit Red Flags

  • These are good red flags to know. Interestingly, my refund amount was adjusted ($500 less than I filed for) and I’m not sure why. I’m thinking it might have to do with your last point – maybe some calculation mistake? but we’ll see. I’m supposed to find out today…somehow.

  • My son came 3 weeks early…in December! Good job, frugal baby…well played 😉

    We’ve never been audited, but we don’t make a ton, own a business, or claim anything ridiculous. We’re pretty simple.

  • I hope I never have to go through an audit. It seems like such a pain in the ass to deal with. The part about claiming a home office is tricky. If you’re doing work from home, you should be able to claim part of the space. What if you sometimes use the office for something other than work?

    • It’s tough! It has to be a dedicated space because you’re then allowed deductions on all sorts of things related to servicing that square footage.

  • I think that the government is becoming stricter about taxes due to the amount of debt that the country is in.

  • I was audited for charitable contributions. I actually gave 15 percent of my income, this was shocking to the IRS. I just showed them the thank you letters and the stack of cancelled checks. The meeting lasted 30 min, it was super easy

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