Kiplinger

20 IRS Audit Red Flags

Have you ever wondered why some tax returns are eyeballed by the IRS while most are ignored? Short on personnel and funding, the IRS audited only 0.59% of all individual tax returns in 2018, and the vast majority of these exams were conducted by mail, meaning most taxpayers never met with an IRS agent in person. So the odds are pretty low that your return will be singled out for review.

That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors, including the complexity of your return, the types and amounts of deductions or other tax breaks you claim, the business you're engaged in, and whether you own foreign assets. Math errors may draw IRS inquiry, but they'll rarely lead to a full-blown exam. Although there's no sure way to avoid an IRS audit, these 20 red flags could increase your chances of unwanted attention from the IRS.

Making a Lot of Money

istockphoto

The overall individual audit rate may only be about one in 170 returns, but the odds increase as your income goes up (especially if you have business income). IRS statistics for 2018 show that individuals with incomes between $200,000 and $1 million who file a Schedule C had a 1.4% audit rate. Report $1 million or more of income? There's a one-in-31 chance your return will be audited.

We're not saying you should try to make less money -- everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you'll be hearing from the IRS.

Failing to Report All Taxable Income

iStockphoto

The IRS gets copies of all the 1099s and W-2s you receive, so be sure you report all required income on your return. IRS computers are pretty good at matching the numbers on

You’re reading a preview, subscribe to read more.

More from Kiplinger

Kiplinger2 min read
Tax-Savvy Charitable Giving With QCDs Can Benefit Both Giver and Receiver
Plenty of retirees like to give back to their communities through charitable donations, but questions often arise over the best way to do that. What approach is efficient, provides the tax benefits you’re after, and also is advantageous for the chari
Kiplinger5 min readRobotics
Retirees: Your Next Companion May Be a Robot
Elliq, a foot-hight robot that looks like an oval lampshade on a small base, greets Monica Perez first thing in the morning, asks her how she feels, and reminds her about taking medications and any upcoming appointments.  “I have good-quality friends
Kiplinger5 min read
4 Steps for Managing Income Withdrawals in Retirement
If you’re like most Americans nearing retirement, you’re worried about whether you have enough savings. In fact, only 22% of those approaching retirement believe they’ve saved enough to retire comfortably. At a time when the stock market is down, inf

Related Books & Audiobooks