Top 10 IRS Audit Red Flags

Education & Training with Tax Crisis Rescue LA CPA 27402

No one wants to pay more income taxes than they are required to, but be careful if you do your own taxes. Attempting to cut your tax liability by getting into IRS grey areas can cause you problems later on. You don't have to do anything unethical to get your return pulled for an audit, you just have to raise too many of these red flags. If you’re in the middle of an audit or owe back taxes, contact us in New Orleans, Louisiana to schedule a free Tax Debt Strategy Session.


1.   Making too much money. Sounds like a problem everyone would like to have, but making over $200,000 may make you more likely to be audited. The fact is that there are fewer auditors, so the IRS is focusing on where they can make the most bang for the buck.


2.   Not reporting all your income. No matter how much or little you make, report everything. In some way or other, unless you run a strictly cash business (another red flag), all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated and sent in to the IRS. If your reported income doesn't match theirs, that's one more red flag.


3.   Math errors. Whether you file electronically or still file paper forms, your information gets entered into a computer. And one thing computers are very good at is doing math. If things don’t add up, or there was an honest mistake in inputting the information, it can raise a red flag. A math error won't necessarily get you an audit, but it will get attention you may not want. Make sure to double check your returns and have a qualified tax professional assist you and keep you out of tax trouble.


4.   Home businesses that never make money. Sole proprietorships that file a Schedule C year after year and always show a loss will raise a red flag. Even if you show a profit, but the profit margin is always unreasonably small, that will get the IRS' attention.


5.   Large charitable deductions. There is nothing wrong with being charitable and there is no legal limit to how much of your hard earned cash you can give away, but if your donation is out of sync with the norm, that's another red flag.


6.   Overstating business expenses. Depending on the type of job you have, there can be many legitimate expenses that your employer doesn't reimburse you for. If you’re a business, you might be tempted to write off just a little extra. These might be genuine deductions. But don't try to deduct something that's not on the approved list and don't claim deductions way outside the norm. Check with your tax professional and stay up to date with tax laws so you’re not padding your tax return with write offs.


7.   Sketchy real estate rental revenue or losses. Some people will 'rent' their property to friends or family at well below market value and then claim normal rental business expenses. As with other areas, the IRS compares what you claim against local standards to determine if this is a legit business. If not, they will disallow the deductions.


8.   Home office deductions. There are absolutely legitimate home office deductions but the IRS has very strict guidelines on what you can claim and how much. Try to claim too much and this is a classic red flag.  Consider taking the standard amount per square foot to reduce scrutiny.


9.   Claiming losses for things that aren't deductible or deductible in your circumstances. One example is claiming day-trading losses on a Schedule C. If you dabble in stock trading and take a loss, it may or may not be deductible, but almost certainly doesn't qualify for a Schedule C loss. You also can't take a deduction for alimony. The IRS maintains a list of non-deductible expenses, make sure to check that and check with your tax professional.


10. Claiming 100% business use of your vehicle. If you spend most of the time in your vehicle doing your job, you may think it's easier just to claim the whole thing for business. Wrong. You will either have to show your personal use, no matter how small, or show you have a second vehicle for personal use.


Many of these items are red flags for an audit, but many are also legitimate deductions. The key is to have a qualified tax professional on your side, especially someone who is well experienced in tax resolution and can help you minimize the risk of an audit and the resulting tax problems down the road. At the very least, keep meticulous records and make sure you are inside the guidelines of the IRS. 


If you need an expert tax resolution professional in New Orleans, Louisiana who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential Tax Debt Strategy Session to explain your options to permanently resolve your tax problem.

Comments (4)

Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Dirk and welcome to the rain. This is great and timely advise. TY

Feb 11, 2019 08:27 AM
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

Writing off a home office can be tricky. The IRS puts lots of requirements & restrictions on what you can claim. However, if you follow the rules and can be a nice deduction.

Feb 11, 2019 01:50 PM
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

These are great tips, thank you for sharing.

Feb 11, 2019 04:04 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Damn!  I'm going to have to hold my breath as I may have made too much money last year.

Feb 12, 2019 06:11 AM