An IRS audit is everyone's biggest nightmare, but it can and does happen. If you're handling your taxes correctly, the chances of getting audited are very low. But, there are certain red flags that may result in an IRS audit. It's important to be aware of these red flags so that you continue to make the right choices when filing your taxes.
Not Reporting Income
You need to report your income. If you're giving numbers that don't match up to your 1099s or W-2s, that is a big issue and it likely won't go unnoticed.
A Very Large Income or a Very Small Income
It's more likely that you will get audited if your income is very, very low or if it's very, very high. It may look questionable depending on the situation, your job, and your past income history. The IRS will take note of significant income changes compared to past years.
Home Office Deduction
If you legitimately have and use a home office for your work, be sure to claim this deduction. But, if you don't really have one, you won't want to claim a home office deduction. You can't claim a living room or family room, for example. There are set rules in place as to what qualified as a home office and the room can't have multiple uses.
High Charitable Donations
Another red flag that may trigger an IRS audit is reporting very high charitable donations. Make sure that you're entering donations correctly and that you have proof available to back up your claims.
Higher-Than-Average Credits or Deductions
Deductions and credits are a great way to lower your tax bill, but they need to be utilized appropriately. If your tax credit and tax deduction amounts are higher than average, this can look like a big red flag to the IRS.
A Lot of Round Numbers
Round numbers look questionable. Of course, if the numbers are accurate, that's okay. But make sure that you're not guessing a lot with round numbers as this will look suspicious to the IRS.
These are some of the most common red flags that can result in an IRS audit. You want to make sure that you take great care when handling your tax needs. If you want to avoid an audit and want to have support in the event that you do get audited, it's a good idea to hire a tax preparation service. They will ensure that you're doing your taxes the right way. Contact services like Jeffrey Beebe CPA to learn more.