Taxpayers overall face a low audit risk: The IRS audited 1.1% of all individual tax returns filed in 2010, but the risk of an audit skyrockets for some: 12.5% of all taxpayers whose income topped $1 million faced an audit and 4% of self-employed people who filed a Schedule C with gross receipts of $100,000 or more.
Here are seven red flags:
1. Schedule C. Check out BizStats.com for an idea of whether your numbers are out of line; IRS agents review this site for average business costs.
2. Rental losses.
3. Over-the-top deductions. CCH Inc., a Wolters Kluwer business, publishes average amounts for some popular deductions. See the CCH page.
4. Business or hobby?
5. Business use of a car.
6. Home-office deduction.
- Tax Audit Red Flags: 11 Things That May Get the IRS to Pick You (dailyfinance.com)
- What’s the Difference Between an Audit, Correspondence Audit, and an Adjustment Letter? (turbotax.intuit.com)
- TurboTax – Top Five Ways to Avoid a Tax Audit (turbotax.intuit.com)
- Don’t Get Audited! The IRS’s Dirty Dozen Red Flags (dailyfinance.com)