Red Flags That Will Get You Audited by The IRS

Red Flags That Will Get You Audited by The IRS

Being audited by the IRS can be a headache for individuals or a small business. These tips let you know what the IRS considers to be a red flag when it comes to who to audit, and all good tax preparation services can also advise you.

Claiming a Home Office Deduction

It's easy to abuse this deduction and you should only claim it if you actually have a dedicated and separate area in your home that is used as a home office. You'll need to figure out what percentage of your square feet is used as an office, but it allows you to pro-rate some household expenses.

Too Many Charitable Contributions

Always keep accurate paperwork to verify any charitable contributions you make, and if the IRS feels that your income just doesn't justify that amount, it can mean an audit.

Deducting Unreimbursed Business Expenses

Deducting for these expenses beyond two percent of your gross income is allowable, and you can legitimately claim for such things as tools, uniforms, work supplies and trade journals. The IRS may get suspicious if you appear to be deducting too much for everyday work clothing, or the cost of daily commuting.


Your chances of being audited increase to about 1 in 37 if you own over $200,000.

Not Filing Everything

Even if you think an error has been made, you must file all your W2s if you have more than one, along with any 1099 forms.

Other Losses

Claiming too much in rental losses may cause the IRS to take another look at your individual or small business tax return, as can claiming losses from day trading on Schedule C.

Deducting Meals, Travel and Entertainment Expenses

Again, this area is an obvious one when it comes to exaggerating or simply abusing the system, and all small businesses should keep detailed receipts and any other paperwork that can help to verify legitimate business expenses.

Travel expenses include travel by car, train or plane to get between the office and a business meeting or a work-related meeting, as well as the total cost of your hotel room, half the cost of your meals, and even the cost of having your laundry done. If you use your home as a home office and travel from work to a site used for business, those travel costs are deductible too. However, you need to make sure that those business miles you record are actually being used for business purposes.

If you are an individual or small business using one of the several reputable and well-known tax preparation services, they will probably tell you that some of the following things may also trigger that unwanted IRS audit:

Claiming an alimony deduction or writing off a loss for something that is clearly a hobby can also be red flags to the IRS and increase your chances of being audited. A large number of currency transactions, having a bank account based overseas and not reporting it, and running your business almost entirely with cash are all things to be careful of.

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