- Days left

Will You Get Audited This Year?

These red flags could indicate the IRS will be calling.

×
IRS Income Tax Audit
Alamy
By Kimberly Palmer

The Internal Revenue Service is on the prowl -- possibly for you. Thanks to improved detection systems and computerized checks, the IRS can more easily identify red flags that trigger audits, says Joseph Perry, a partner at Marcum, a public accounting firm. "They definitely contact taxpayers more frequently."

Contact typically starts with a letter requesting more information and can lead to in-person meetings. Perry says it's usually triggered by a tax return that contains something unusual, such as an above-average deduction or change in income from previous years. As long as the taxpayer can defend his filings with the proper paperwork and logic, Perry says he has nothing to worry about -- other than the time it takes to respond.

Before you start looking anxiously at the mailbox, wondering if the IRS will be mailing you a letter, consider whether any of these nine signs that you're about to get audited apply:

1. You made a lot less money last year. Perry says the IRS looks out for any major changes in income, which can signify that a taxpayer is underreporting his earnings. Since the IRS tracks historic data, people who suddenly start reporting much less income can be flagged for an audit.

2. You lose or forget to file a form. Since employers send copies of all 1099 forms and W-2 forms to the IRS as well as to you, if you lose your version or forget to file it with your taxes, the IRS might notice it's missing and can flag your return for review.
If you receive a form that looks like it has an incorrect amount or inaccurate information on it, Perry suggests talking to your employer before filing your taxes. You want to make sure the information you provide to the IRS matches up with any information they receive about you.

3. You work for yourself. It might not seem fair, but being self-employed can raise red flags for the IRS, especially if you claim your home office and other costs as business expenses but don't earn much income. "The IRS questions those type of businesses," Perry says. His advice is to keep careful track of all paperwork so you can defend any deductions and credits you take.

4. You claim losses from a hobby. While writing off business expenses can be legitimate, it's illegal to pretend a hobby is a business and then write off the related expenses. For example, if you enjoy woodworking, you might practice the craft on the weekends for fun. Doing so does not enable you to write off the cost of wood and tools. (If you were selling those creations online, that would be a different story.) The difference between a small business and a hobby, Perry says, is that a business "must be entered into and conducted with the reasonable expectation of making a profit."

5. Deducing home office (or car) expenses. While plenty of people can legitimately claim home office expenses on their taxes, some people do so incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction, Perry says. In order to qualify, the home office must be used for work only. Likewise, claiming a car as a business expense can also raise red flags; Perry urges taxpayers doing this to keep careful track of how much they use the car for business versus personal use.

6. You included expensive meals and entertainment costs among your deductions. The IRS often double-checks these types of claims to make sure they are legitimate business expenses, Perry says.

7. You were particularly generous this year. Perry says the IRS is on the lookout for people who inflate their charitable donations, and the agency takes a close look at taxpayers who say they donated $500 or just under, since anyone who donates more than that amount must file Form 8283. (And if you do donate more than $500, be sure to file that form.)

8. You maintain an overseas bank account. The IRS has added more reporting requirements this year for people with money in foreign accounts. Failing to report one could trigger an audit.

9. Your numbers don't match. If numbers on various forms don't match or add up correctly, the IRS is likely to notice and look into any disparities. So treat your taxes like a final exam in algebra and check over all the numbers before submitting.

As long as you know you filed your paperwork properly, you can sit back and enjoy any refunds coming your way.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.


More from U.S. News


A Common Mistake People Make On Their Taxes

Increase your money and finance knowledge from home

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

Are You Exempt From Health Care Coverage?

The Affordable Care Act, or Obamacare, is an individual mandate that requires all eligible Americans to have some form of basic health coverage by 2014. Those without insurance will receive a penalty when they file their tax returns ? that is, unless they have an exemption. TurboTax's Exemption Check can help you find out whether or not you qualify for an exemption.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

Mortgage Refinance Tax Deductions

When refinancing a mortgage to get a lower interest rate or obtain more favorable loan terms, you're really just taking out a new loan and using the money to pay off your existing home loan. In general, the same tax deductions are available when you're refinancing a mortgage as when you're taking out a mortgage to buy a home.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

Rental Property Deductions You Can Take at Tax Time

Rental property often offers larger deductions and tax benefits than most investments. Many of these are overlooked by landlords at tax time. This can make a difference in making a profit or losing money on your real estate venture. If you own a rental property, the IRS allows you to deduct expenses you pay for the upkeep and maintenance of the property, conserving and managing the property, and other expenses deemed necessary and associated with property rental.

Add a Comment

*0 / 3000 Character Maximum

Comments

Filter by:
martinru2

When I let them do the math, why is it that I always end up oweing them?

March 05 2014 at 6:55 PM Report abuse rate up rate down Reply