The Top Five Red Flags That Can Trigger An IRS Audit

Apr 3, 2017 | Blog

IRS Audit CoupleWith tax season coming to a close, many filers are dreading the arrival of April 15 and the terrifying prospect of an being audited. Many taxpayers will hit “send” on their returns, then agonize over whether they have filled out their deductions correctly or accounted for each penny earned. Understanding what red flags commonly trigger an IRS audit is the best way to avoid this possibility.

1. Failing to Report Taxable Income

When you earn more than a certain amount of income each year, you are required to report it to the IRS, regardless of how it is earned. This amount varies from year to year, but in past years, the limit has been $600. You are required to report your wages earned from work, any income from small business and even income from illegal activities. Failing to report this income—especially if you have reported it in past years—can trigger an audit.

2. Claiming Unusual or Large Deductions

While many people make small donations to charity in the form of personal checks, making too large of a donation can trigger an audit. Many taxpayers use donations of cars and clothes to get a larger deduction than they’re entitled to. The IRS will examine your return more closely if the amount of your charitable donations are out of proportion to your income. If you earn $30,000 a year and claim a deduction for a $10,000 donation, it doesn’t take a tax lawyer in San Francisco to tell you that the IRS might come knocking.

3. Claiming Too Many Meals and Other Incidentals

It is not unusual for employees to have expenses that their employers do not reimburse, but having too many of these deductions can raise red flags on your tax return. If you are claiming deductions for meals, trips and entertainment, be ready to explain how these relate to your work. Make sure to save all of your receipts in case you are faced with an interview with the IRS.

4. The Home Office Deduction

A huge chunk of the millions of entrepreneurs and self-employed professionals in the U.S. work from home. For many of these people, however, claiming the home office deduction can be enough to have your tax return flagged by the IRS. Remember that the only amount you can claim as a home office deduction is the portion of your office that is used for your home business. If you use your home office for personal reasons, you may not be able to deduct that portion from your taxes.

5. The Alimony Deduction

One of the most surprising things that the IRS is cracking down on is alimony deductions. The payer of alimony is allowed to take a certain deduction, but only if certain conditions are met. Without a divorce agreement that outlines the terms of alimony, the IRS will deny you the deduction and any credits that come along with it. Both the payer and the recipient have to report alimony payments on their taxes and these numbers must match up. If they don’t, you may get audited by the IRS.

If you are being audited by the IRS and need legal representation from a tax attorney in San Francisco, call us today at 1-866-TAX-TAX-5.

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