Common Red Flags for IRS Audits
Common Red Flags for IRS Audits
Last year’s individual audit rate was 0.59%… one in every 170 returns filed on the 1040 and such. But this figure doesn’t tell the full story. Lots of red flags can increase your audit risk. Some are identified by the agency’s computer formulas for selecting individual returns for exam, while others are included in issue-focused compliance campaigns by IRS’s Large Business and International Division. This second group consists of narrower risk areas in which IRS finds taxpayer compliance to be lacking.
Here are some common audit triggers.
- Taking higher-than-average deductions.
- Writing off alimony.
- Claiming large charitable deductions.
- Running a small business.
- Big write-offs for meals, transportation and travel
- Sole proprietors who claim 100% business use of a vehicle.
- Reporting substantial losses or little to no adjusted gross income.
- Foreign tax credits taken by individuals.
- Filers who take the health premium credit for insurance bought through an exchange or who claim the earned income credit.
- People who invest in or deal in virtual currency.
- S corporation shareholders who deduct losses in excess of their stock basis and loans that they make to the company.
- Owners of unreported overseas financial accounts.
- S. citizens working abroad who claim the foreign earned income exclusion.