Don’t be a Target – IRS Audit Red Flags

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My comments are in red and green.

This list was found in a very good article: 15 Reasons You Might Get Audited

  1. Report a lot of income. (agreed)
    1. IRS stats for 2014 show that people with incomes of $200,000 or higher had an audit rate of one out of every 37 returns. Incomes of $1,000,000 or higher had an audit rate of one out of every 13 returns.
  2. Failing to Report All Taxable Income – Schedules B & D and elsewhere  (agreed)
  3. Taking Higher-than-Average Deductions – Schedule A  (fuhgeddaboudit, of course you need proof, but generally no problem unless it looks ridiculously out of line)
  4. Running a Small Business – Schedule C (agreed, somewhat higher audit risk, but not so much when prepared properly by a professional)
  5. Taking Large Charitable Deductions, in relation to your AGI (agreed)
  6. Claiming Rental Losses (fuhgeddaboudit)
  7. Taking an Alimony Deduction (fuhgeddaboudit)
  8. Writing off a Loss for a Hobby Activity (agreed)
  9. Deducting Business Meals, Travel and Entertainment (fuhgeddaboudit, of course you need solid proof if selected for an audit)
  10. Failing to Report a Foreign Bank Account (agreed)
  11. Claiming 100% Business Use of a Vehicle (fuhgeddaboudit, of course you need solid proof if selected for an audit)
  12. Claiming Day-Trading Losses on Schedule C   (agreed, higher audit risk, but not so much when prepared properly by a professional)
  13. Gambling: Failing to Report Winnings (agreed) or Claiming Big Losses (fuhgeddaboudit, the IRS knows that the house always wins)
  14. Claiming the Home Office Deduction (fuhgeddaboudit)
  15. Engaging in Currency Transactions (the $10,000 currency rules) (agreed)

 


This list was found in a very good article: A List of 22 Audit Triggers

  1. Outsized charitable contributions.  (agreed)
  2. Large property contributions. (agreed, generally for items over $5,000)
  3. Unmatched alimony. (agreed)
  4. High mortgage interest. (agreed, if it appears the debt exceeds $1,100,000)
  5. Unreported income. (agreed)
  6. Gambling losses. (fuhgeddaboudit, the IRS knows that the house always wins)
  7. Miscellaneous 2% itemized deductions. (fuhgeddaboudit)
  8. Foreign bank accounts. (fuhgeddaboudit, but make sure you properly report all of these)
  9. Unreimbursed employee business expenses. (fuhgeddaboudit)
  10. Cash transactions in excess of $10,000. (agreed)
  11. Rental losses of a real estate professional. (fuhgeddaboudit, but be prepared to prove you meet the rule)
  12. Casualty losses. (fuhgeddaboudit, but if selected for audit you need to be very well prepared)
  13. Bad debt losses. (fuhgeddaboudit)
  14. Home office. (fuhgeddaboudit)
  15. Day-trading losses on Schedule C   (agreed, higher audit risk, but not so much when prepared properly by a professional)
  16. Net operating loss. (fuhgeddaboudit, unless carried back 2 years)
  17. Rental losses. (fuhgeddaboudit)
  18. Hobby losses (agreed) and also:
    1. a business return such as a Schedule C,   (agreed, somewhat higher audit risk, but not so much when prepared properly by a professional)
    2. a business return such as a S corporation or LLC (fuhgeddaboudit)
    3. rental properties. (fuhgeddaboudit)
  19. Travel and entertainment. (fuhgeddaboudit, of course you need solid proof if selected for an audit)
  20. Automobile usage. (fuhgeddaboudit, of course you need solid proof if selected for an audit)
  21. Repairs and maintenance. (fuhgeddaboudit)
  22. Zero officer salaries for an S corporation. (I recommend paying reasonable salaries, but IRS is lax about initiating an audit due to this)