5 things that trigger an IRS audit
(MoneyWatch) No one wants to get that IRS Notice or Letter of additional taxes due or an invitation to come to the local IRS office for an audit. If you want to reduce your chances of getting flagged for an audit, or to know that your chances for one are higher, then you need to know what can trigger it. Here are five situations that can draw additional attention of the IRS to your tax return.
-- Reporting income and taxes withheld on your tax return that does not agree with the information on the Forms W-2 and 1099 that you received. The IRS receives the same information and their Document Matching Program will always flag these errors.
-- Total income from self employment, reported on Schedule C, of $100,000 or more. According to one study, the IRS has concluded that individuals filing Schedule C are more likely to under-report their income and overstate their deductions.
-- Claiming deductions that are unusually large in relation to your income. According to a report of IRS inquiries, the IRS selected a taxpayer's return for audit when the tax payer claimed over $18,000 of un-reimbursed business expenses when he reported only $25,000 in gross income.
-- Married taxpayers filing separately who both claim the same deductions. Many such taxpayers should split or allocate the deductions that are paid jointly.
-- Taxpayers who earn their income from certain industries or activities that, based on past IRS audit experience, have a higher incidence of noncompliance. This includes tax returns of auto dealers, taxi and air service operators, attorneys, gas retailers, etc.
Check back in a few days when I'll write about a few specific tax return errors that can trigger an IRS audit and how you can avoid them.
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