Can you smell it in the air? That’s the distinct scent of Tax Season approaching. So in these days leading up to everyone’s favorite time of year, here are some reminders about the red flags the IRS looks for when deciding whether to audit a taxpayer.
1. Failing to report all taxable income If you made a little bit of freelance money in addition to your regular job, it might be tempting to roll the dice and hope the IRS doesn’t notice. But if you got a 1099 or a W-2 from that company, then so did the IRS. And if you file your tax return without including one of those forms, it can set off alarm bells at the IRS.
2. Taking large charitable deductions It’s a huge temptation to claim that you gave away piles of money and old clothing to various charities — and maybe you did — but when a taxpayer donates a disproportionately large chunk of her income, the IRS raises an eyebrow in disbelief.
3. Claiming 100% business use of a vehicle If you’re going to claim that one of the cars in your driveway was used solely for business purposes, be prepared to provide detailed mileage logs to a skeptical IRS auditor.
4. Running a small business It seems unfair for the IRS to pick on small business owners, but because some rotten apples — especially those in cash-heavy operations, like taxi services or lucrative car washes services in New Mexico have a tendency to under-report revenue, the IRS has a tendency look at these companies like yummy cheese on a platter.
5. Claiming the home office deduction This is a classic red flag. Some folks will exaggerate the size of their home office, the expenses associated with it (and sometimes that it exists at all), and so this deduction is a favorite for IRS auditors.