Red Flags that May Cause a Tax Audit
Red Flags that May Cause a Tax Audit

Red Flags that May Cause a Tax Audit

Tax audit

When it comes to the IRS and tax audits, no one knows exactly what causes them to audit a particular tax return. However, some of the triggers or red flags are obvious and will bring a higher likelihood of starting a tax audit. Getting audited is one of the most common fears taxpayers have. The best way to avoid one is to proofread your return before filing and even have a professional tax preparer look at your return to identify any potential red flags. Here are some of the red flags that bring a higher probability of getting audited.

Suspiciously High Number And Amount Of Deductions

Claiming too many tax deductions that don’t match up with your income level or past tax returns is going to look suspicious to the IRS. Assuming your income has remained steady over the past couple of years, suddenly making a higher amount of charitable contributions this year to boost your tax refund is sure to raise some eyebrows. Rental property expenses and other similar expenses that are out of the ordinary could prompt a tax audit as well. If these deductions are legitimate, be sure to keep all documentation to prove to the IRS that they are accurate and you shouldn’t have any problems.

Too Many Dependent Exemptions Claimed

When you’re filing as the head of household and have an unusually high number of dependent exemptions, you’re more likely to be audited. This is especially true if your income is in a lower tax bracket. Your dependent exemptions are some of the easiest to prove, so as long as the information on your IRS forms are accurate, then the audit should be a simple one.

No Expenses On Self-Employment Income

If you claim the Earned Income Tax Credit, but don’t have any expenses on your self-employment income, the IRS may wonder why that’s true. Every source of self-employment income is unique so it’s possible you may not have any expenses in a particular tax year. You may just have to answer some questions from the IRS, but the audit process should not be extensive.

A Large Number Of Business Losses

Business losses will happen at some point, but a significantly higher number from year-to-year will create a red flag. Other similar events include a large amount of income from a foreign source or non-taxable investment income. Again, while these create red flags for a potential tax audit, as long as you have proof of the legitimacy there should be no major issues or penalties.

Rocket Tax Relief is here to help you fill out your IRS forms accurately so you don’t inadvertently prompt a tax audit. Many audits can be handled and resolved quickly just by providing the IRS with more information. It’s always important to contact a tax preparer who helps with audit representation as well, and that’s exactly what we are here for. Contact us today if you’re preparing your taxes and want to reduce the chances of getting audited or if you’ve already received a notice from the IRS and need assistance responding.