Several things can trigger a taxpayer’s worst nightmare — an audit. While the odds of an IRS audit are surprisingly low (less than 1% for people earning between $25,000 and $100,000 per year), some taxpayers are at a higher risk than others. Although the IRS doesn’t formally disclose which tax returns are more likely to be singled out, a closer look at the agency’s track record reveals a few clues.
Red Flags that May Trigger a Tax Audit
Avoiding these triggers can reduce the risk of an IRS audit.
Failing to Report Income
The IRS receives copies of all W-2 and 1099 forms and compares them to the income reported on tax returns. When discrepancies arise, the IRS is more likely to take a closer look. Though some taxpayers are audited immediately, others may not receive an audit notice for months or even years after filing. Ordering a wage and income transcript can help taxpayers verify the information that has been reported to the IRS. Unfortunately, taxpayers may not have access to their transcripts for the current year until about 3 to 6 weeks after they have filed their returns.
Claiming Questionable Credits and Deductions
Certain types of deductions, especially those that are out of the ordinary for the average taxpayer in the same general income bracket, can cause the IRS to raise a few eyebrows. Charity, entertainment and travel expenses, and deductions for bad debts are often triggers. It’s perfectly fine for people to take legitimate credits and deductions, but they should be prepared to back them up in the event of an audit.
Reporting Millions in Income
The IRS performed tax audits on approximately 16% of tax filers who reported over $10 million in coming in 2014. Apparently, the IRS considers people with the most money as those who have the most to hide.
Reporting No Income
Taxpayers who report no income due to operating losses and the like have a higher than average chance of being audited by the IRS as well. Approximately 5.3 percent of taxpayers who reported no income faced tax audits in 2014.
Filing an International Return
The IRS has significantly increased scrutiny of taxpayers who file international returns in recent years. Agents scrutinized about 4.8% of international returns in 2014.
The IRS Is Auditing Me! Please Help!
Is the IRS knocking on your door? If so, we can help. Our team of tax controversy attorneys has assisted countless individuals and businesses with all manners of audits. We know how to negotiate with the IRS and are often able to reduce clients’ tax debt amounts.
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