For a taxpayer, being selected by the IRS for an audit represents an absolute nightmare. At the very least, an IRS audit represents stress and a great deal of time. And in many cases an IRS audit leads to tax penalties and worse for the taxpayer.
Unfortunately, there is no way to completely eliminate the possibility of an audit. A certain percentage of IRS audit targets are selected at random, and if you’re unlucky enough to be selected, there’s nothing you can do to avoid it. But the majority of IRS audits result from a number of “red flags” that draw IRS attention. A recent Motley Fool article highlights several of these red flags. Below is a brief excerpt:
Incomplete information. It's easy to make mistakes on your return if you're filling it out yourself. And one mistake that will raise a red flag for the IRS is if your return is missing information. The IRS might wonder what other information is missing and audit you.
Not reporting all taxable income. You must report all 1099 and W-2 forms. Remember, the IRS gets copies of everything you receive. Failure to report all your taxable income may cause red flags.
Excessive deductions. By all means, deduct everything you're allowed to. But don't overstate your deductions or lie about them. The IRS is well aware of what is outside the norm for people at your income level.
Home office deductions. Be careful about deducting for having a home office. As we mentioned, deductions raise eyebrows. To qualify for this deduction, your home office space must be used exclusively as your place of business. If you're entitled to the deduction, take it — but be prepared to prove that you regularly use the space for your business. And be sure to only deduct items that were used for your business.
If you’d like to learn more about the IRS audit process, please contact us today. And if you find yourself facing an IRS dispute, we can help. Our team has decades of experience representing taxpayers in their disputes with the IRS, and we’ll work tirelessly to secure the best possible resolution of your case. Please contact us today if you would like to learn more!