What Are Some Red Flags for an IRS Audit?

Goffstown Resident Inquires

Certain activity, even when legitimate can increase your risk for an IRS tax audit.  Some deductions can make an audit more likely including home office, business meals and travel, unreimbursed business expenses and alimony.  Errors in math on your return and not reporting taxable income, in the form of 1099s and W2s, are also all red flags.

A resident in Goffstown, NH was concerned about running the risk of an IRS audit.  He contacted Merrimack Tax Associates looking for suggestions to reduce that risk.

Some Deductions and Loss Claims Can Increase the Likelihood of an Audit

The IRS can go back up to three years for a tax audit, making it important that your paperwork is not only accurate but that it is accessible.  There are certain activities on a tax return that can increase your risk of an audit.  Obviously providing false or erroneous information is a big warning sign for the IRS.  Deductions that raise a red flag are often related to business expenses.  These include a home office, vehicle that is designated 100% for business use, and unreimbursed business expenses that exceed 2% of your gross income.

Donations, Losses and Write-Offs Can Also Raise Suspicion

Large donations to charity can raise concern with the IRS, making it important that these donations are made by check.  Losses associated with a rental property and writing off a business loss that is really more of a hobby can also raise concerns.

Just because a deduction or write-off may raise your likelihood of an audit, does not necessarily mean that you should not take this deduction.  You do need to have the proper documentation and be sure that the write-off is being done correctly under the IRS tax laws.

The resident in Goffstown was pleased to have this information, and in the future he will be working with the experts at Merrimack Tax Associates to ensure that his tax filings are always done properly.