IRS Audit

5 Common Red Flags That Could Trigger an IRS Audit

5 Common Red Flags That Could Trigger an IRS Audit

Receiving a notice that you’re getting audited can wrack your nerves, but at the end of the day, an audit is nothing more than an in-depth fact-checking exercise. Although enduring an audit can be time-consuming and cumbersome, if you’ve been honest and accurate when keeping records and filing tax returns, you shouldn’t have anything to worry about.

Still, that doesn’t mean you should set yourself up for an audit. While the IRS says its audit selection process is entirely random, it seems several red flags tend trigger IRS audits. Keep reading to learn which behaviors or actions could prompt an unwanted review of your personal or professional finances.

And if you’ve already been chosen for an IRS audit or suspect you will soon, please contact S.H. Block Tax Services today to schedule a free consultation.

Understanding The IRS’ Reasoning Behind Audit Selection

According to the IRS, there are two possible ways they select a business or individual for an audit:

  • Computer screening: The IRS uses a computer algorithm to compare your returns against established norms that are based on IRS research.
  • Related examinations: The IRS selects you for an audit based on your financial dealings with other individuals or business entities whom they might be investigating or auditing.

Once you’ve been selected for an audit, the assigned auditor will review your return and then recommend whether to pursue your case further. Note that if you’re selected for further action, the IRS will notify you by mail; they will never initiate an audit over the phone.

5 Common IRS Audit Triggers

Despite the official line from the IRS that says audits are mostly random, several behaviors or actions seem to prompt an audit time and time again. If any of these red flags apply to you, you should attempt to correct the behavior or activity, and you should also contact a skilled and experienced tax resolution attorney for legal assistance.

  1. Failure to Report

    Failing to report any portion of your income is a surefire way to invite an IRS audit. One example involves people who earn additional income on a freelance basis. It can be tempting to omit this information from your returns, but if you received a Form 1099, you can rest assured the IRS received a copy as well and knows about this income.

  2. Simple Errors

    Alexander Pope famously said, “To err is human, to forgive divine,” but this poet never met an IRS auditor. Simple mistakes can have a significant impact on your returns, so the IRS keeps a close eye on every entry. Make sure to double-check your work, and if you’re dealing with complicated returns, you should consider hiring an accountant or tax attorney for assistance.

  3. Excessive Losses

    Self-employed individuals who report too many losses on a Schedule C might attract the attention of the IRS, who may read this as an attempt to hide or disguise your income. This is especially true if you report losses while your business appears otherwise stable. Don’t write off frivolous items, and make every effort to be honest.

  4. Claiming Charitable Donations

    Even the IRS believes in charity, but they have their limits. If you’re claiming too many charitable donations on your annual returns, the IRS is sure to notice. Make sure you can validate your contributions, and see that your income-to-donation ratio looks reasonable.

  5. Using Round Numbers

    While it’s certainly possible your tax return is accurately filled with neat, round numbers, these clean intervals will make the IRS do a double-take. Even numbers are rare in finance and invite suspicion. Be as precise as possible, and if you must round, try to round to the nearest dollar as opposed to the nearest hundred.

Contact S.H. Block Tax Services for Help With an IRS Audit

An audit can be a painstaking process that creates mounting stress and potential losses. And if you’ve been dishonest on your tax returns, you could be in for a very difficult experience.

If the IRS is auditing you or you believe they’re considering you for an audit, S.H. Block Tax Services is here to help. Our attorneys and support staff have decades of experience with tax resolution, and we have earned an A+ rating with the Better Business Bureau.

Please contact our offices today by calling (410) 793-1231 or completing this brief form to schedule your free consultation. We’ll use this time to discuss your situation and begin developing an effective plan of action.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *