The top red flags that could signal a tax audit

Photo courtesy Flickr user Tax Credits

(MoneyWatch) We're getting down to the wire, with just a few weeks left to complete your 2012 tax return before the April 15 deadline. Of course, tax time always seems to generate audit anxiety. Though only about 1.03 percent of returns ever get audited, there are any number of red flags that can dramatically increase the odds that you'll be selected for special treatment by the IRS.

Wondering if your return is audit bait? It's not black magic; the most egregious red flags are well known. Here are the top tax return warning signs to watch for.

The Home Office deduction. This is the one to watch for, because the IRS certainly does. It's infamous, and for good reason; many people abuse it, and so the IRS is relatively more likely to zero in on returns that claim it. Remember that the home office space you claim must be used regularly and exclusively as your place of business -- so you can't cite a guest bedroom or the garage, unless that is absolutely all you do there.

Claiming business use of a vehicle. Like your home office, claiming business use of a vehicle is a treasure trove for the IRS when audit hunting. That doesn't mean you shouldn't claim your vehicle if your use of it is valid, but be very wary in particular of claiming 100 percent business use. Very few people can successfully claim complete business use of a car they own or lease, so keep good and thorough logs of how you employ your car.

Failing to report all taxable income. The most tempting audit bait is when you don't follow the law, such as failing to declare all of your taxable income. It's not like you can easily hide it; after all, the IRS gets a copy of all of your W-2s and 1099s.

Making unusually high charitable deductions. One of the benefits of reviewing millions of tax returns every year is that the government has access to statistical data that can accurately flag anomalous behavior. For example, charitable donations that don't conform to expected values for your income level. Not only should you be careful to accurately asses your charitable donations (such as if you give away personal property to Goodwill or similar organizations) but you should do it properly -- such as filing for 8283 for donations over $500.

An anomalously high income. If your income is very high, congratulations. And while there's not much you can -- or probably even want to -- do about that, you should be aware that for incomes over $200,000, the audit rate is almost 4 times higher than the national average.

Photo courtesy Flickr user Tax Credits

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