Completing your federal income taxes is a monumental event that brings a sigh of relief. However, any euphoria over the annual accomplishment quickly dissipates with a common nagging fear: an audit.
While there is no perfect recipe to avoid an audit, there are red flags that wave prominently with the IRS.
Filing a paper return
Mailing your tax return was once commonplace. With the advent of technology, specifically tax return software, hard copies are now under a much greater audit microscope. Often rife with math errors and illegible handwriting, you could find your return going through a more selective and thorough review.
Business and home-office deductions
Business expenses involve goods and services necessary to perform a job. However, citing excessive costs leading to losses on a Schedule C over several years could lead to your business being classified as a hobby. Additionally, when it comes to writing off space in your home for business purposes, claiming the largest room in your house as exclusive for operation could raise suspicion.
Charity vs. income
While charity begins at home, disproportionately high contributions compared to income could be the beginning of the audit process from a not-so-charitable IRS auditor. Regardless of how much you give, you need to have documentation of every contribution.
Forgetting about nonwage income is not something the IRS will overlook In fact, failure to report income generated from freelance work, dividends or interest will be automatically reported to the IRS. Even the most innocent of oversights could lead to an audit.
Whole round numbers may make the math easier in a tax return. However, $100 here, $300 there, and other “perfect” amounts listed as deductions without documentation will not make life easier. The IRS will strive for its own perfection auditing you.