The Internal Revenue Service audited .96 percent of individual tax returns in fiscal year 2013, declining for the second straight year. Even though there was a decline, the IRS increased the revenue it collected from tax enforcement by 6.3%.
Ever wonder why some tax returns are selected by the IRS while most are not? The IRS audits only slightly more than 1% of all individual tax returns annually. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.
These are red flags that could increase your chances of drawing some unwanted attention:
- Making over $200,000
- Failing to report all taxable income
- Taking large charitable deductions
- Investors claiming day-trading losses on Schedule C
- Claiming rental real estate losses
- Deducting large amounts of business meals, travel, and entertainment on Schedule C
- Claiming 100% business use of a vehicle without appropriate record keeping
- Writing off a loss for a hobby activity
- Claiming the home office deduction when it’s not exclusively and regularly used as your principal place of business
- Taking an alimony deduction when it doesn’t satisfy the requirements
- Running a cash intensive business or pass-through firm
- Failing to report a foreign bank account
- Engaging in currency transactions
- Taking higher than average deductions compared to your income
Don’t be afraid to take a deduction if you’re entitled to it. Especially if you have proper documentation to prove it.
