According to an article in Kiplinger by Editor Joy Taylor dated December 5, 2018, 18 Red Flags for IRS Audits consist of:
High Income: As of 2017, an average of only 0.015% of total tax returns filed are audited. .08% of Returns on incomes between $200,000 and $1,000,000 without a Sch. C attached are audited, 1.6% of Returns including Sch. C are audited and 4.3% of returns with incomes of more than $1,000,000 are audited
Failure to Report ALL Income: Be sure to report any W-2 or 1099 received. IRS computers are pretty good at matching W-2’s & 1099’s received with W-2’s & 1099’s reported, so be sure to include ANY W-2 or 1099 you receive in your return.
Taking Higher than Average Deductions: The IRS has tables for average deductions within income ranges so be sure to maintain adequate documentation to support any deductions taken.
Running a Business: Business owners reporting >$100,000 in Gross Receipts on Sch C and those reporting a substantial loss have a higher risk of audit.
Large Charitable Deductions: The IRS also has tables for Average Charitable Deductions within income ranges, so like with Average Deductions, be sure to keep adequate documentation for all contributions, use Form 8283 for Noncash Contributions >$500 and get appraisals for valuable property contributed.
Claiming Rental Losses: The IRS actively scrutinizes rental real estate losses, especially those included in tax returns including high W-2 or Non-Real Estate Sch C Incomes.
Alimony Deductions: Be sure alimony arrangements are spelled out and adhered to specifically if taking alimony deductions.
Hobby Losses: Audit probability rises significantly if you report multiple years of Sch C losses or run a business that sounds like a hobby and have significant income from other sources. If you run a business that generates a profit 3 out of every 5 years, the law presumes you’re in business to make a profit.
Deducting Meals and Entertainment: Large Business T&E sets off alarm bells.
Other Audit Flags are:
|Failure to report foreign bank accounts|
|Claiming 100% business use of a vehicle|
|Incorrectly reporting Health Premium Tax Credit|
|Taking an early payout from an IRA or 401K|
|Claiming Day Trading Losses|
|Operating a Marijuana Business|
|Failing to report gambling winnings or claiming large gambling losses|
|Engaging in Currency transactions|
|Claiming Foreign Earned Income Exclusion|