IRS Audit Flags – Killer IRS CPA Tax Triggers
IRS Audit Flags – High Income
Yes, making more money then the average person can be one of the audit flags. By making over $100,000 per year your audit chances can more than double. Over $1,000,000 and it will be several times more than that. We still think you shouldn’t be discouraged from making as much money as you can. Just hire good accountants. If you need a referral, just call us. We know a couple of excellent CPA’s.
Home Office Deduction Flag
We recommend that our client avoid this because this is on of the IRS Audit Flags that the IRS continually looks for. Unless the expenses warrant taking the risk, we say “don’t take it”. In practice, given the reasons the IRS audits people, I can’t remember anyone who was audited specifically because they took the home office deduction. If they did the returns themselves or hired a part time tax preparation company employee who messed it up, then yes it could trigger an audit. I’ve seen home office deductions for employees (W-2 recipients) on a Sch A. By far these can trigger an audit. There are very strict rules for taking any employee business deductions. Do you know what they are? We can help.
Using Large Round Numbers
If you want to show you are estimating you can use round numbers as much as $5,000. If you use too many large round numbers to IRS, they may conclude that you are not keeping adequate records. This means there is a greater likelihood that a larger tax assessment will result if you are audited. It has always made sense to me. We try not to use too many round numbers. This can backfire. No one seems to explain this to the general public. If you use an exact number such as $5,431 and you don’t have any proof for the deduction, the auditor will treat it as an obvious attempt to put down a phony deduction. There are defenses. We have become quite good over the years at defending our audit clients.
Too Many Dependents
When I was a teenager, my mother had a friend who deducted his pet a dependent. After a few years he was caught by the IRS. Since then, I’ve always wondered why people would claim things on their returns that are obviously fraudulent. There are five test for whether or not you can claim someone as a dependent. If they pass the test claim them. If not, then don’t.