Five Red Flags That Might Trigger an IRS Audit

Written by Nickel - 5 Comments

Just in the nick of time… Last night I ran across an article that details five supposed red flags for triggering an IRS audit. The truth is, the formula for identifying which returns to audit remains a mystery, so it’s hard to say what the most important factors really are. But it’s still worth a glance, especially with April 15th drawing ever closer…

Here they are:

1. Overkill on charitable contributions — Donations that are disproportionate to your income might raise eyebrows.
2. Too many deductions for the self-employed — Keep your work-related write-offs in check, as the IRS will compare your deductions to the size of your business to ensure that things aren’t out of whack.
3. Above-average deductions — Here again, the IRS will be suspicious of unexpectedly high deductions, this time in relation to your income.
4. Making six figures — The IRS apparently views such individuals as lucrative targets, and they’ve even gone on record in stating that audit coverage in this category is “still too low” despite the fact the number doubled from 2001 to 2005.
5. Careless omissions — To avoid problems, the article recommends filing electronically. That’s funny, because I read just the exact opposite in a recent article over at MyMoneyBlog.

[Source: CNN/Money]

Published on February 23rd, 2006 - 5 Comments
Filed under: Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Comments (scroll down to add your own):

I don’t worry about things like this because you shouldn’t let it alter your behavior. Now someone out there is going to NOT donate money because they think they’ll be audited.
Comment by jim — Feb 23rd 2006 @ 12:57 pm
Yeah, I think the message from this article is that if you’re going to cheat on your taxes, do so with caution. The only real thing to think about here is whether or not to file electronically… But then there’s disagreement on that point.

Comment by nickel — Feb 23rd 2006 @ 1:16 pm
The IRS is specifically encouraging people to e-File. One doubts they’d do that, if they considered e-Filing to be per se suspicious behavior.
Comment by Matt — Feb 24th 2006 @ 5:23 am
E-filing makes it easier for the IRS both to see if you have red-flag behavior and to see if you don’t. If anything at all is funny about your return, your likelihood is greater that they’ll notice if you e-file.

That said, my brokerage screwed up my 1099-B this year (by their own admission), so the cost basis on my return doesn’t match their number, and yet I still e-filed. However, I’ve got the records to back it up if they ever ask why.
Comment by Dan — Feb 28th 2006 @ 4:00 pm
do NOT e-file

the irs, like all gov’t agencies, has a preset budget. e-filing saves the irs money that they can use in ways that may not benefit the tax payers.

sending in a paper return cost the irs more money. why do you think the irs has so many “benefits” to e-file?
Comment by carolyn — Apr 12th 2008 @ 2:42 pm