Home
>
Tax
>
Tax Audits: What Signs Make You More Likely to be Audited by the IRS?

Tax Audits: What Signs Make You More Likely to be Audited by the IRS?

It's a major fear for most Americans: A notice from the Internal Revenue Service (IRS) summoning you for an audit.

What is it about these three letters that strikes a cord of fear in Americans' hearts? Learning the signs that could put your tax return at the top of the list for an audit, and avoiding them if possible, may put your mind at ease.

Statistically speaking, your chances of actually being audited aren't that high-according to IRS data, one in 150 individual taxpayers were audited in 2003. This number had gone down in recent years-about one of every 79 tax returns was audited in 1998-but then, in 2004, individual taxpayer audits exceeded 1 million for the first time since 1999.

Also in 2004, the IRS gathered a record $43.1 billion in enforcement revenue, a 15 percent increase from 2003. Now in 2005, the IRS plans to add more enforcement to their team, meaning that more tax audits could potentially be performed.

What adds to most people's fear of being audited is that of the unknown: Very few people know just how the IRS chooses which tax returns to audit.

"That's a very closely guarded secret that not many people in the IRS know," said Bernard S. Kent, a partner with the human resource services group at PriceWaterhouseCoopers.

Still, there are some signs that will put your tax return at the top of the "to audit" pile. So take notice of -- and by all means avoid if they're not legitimate -- these red flags that increase your chances of catching the tax examiner's eye.

A computer program called the Discriminant Index Function, or DIF, is the first way your tax return could be marked for an audit. It looks most closely at the following items:

* Higher incomes: If your income is more than $100,000, your chances of being audited increase to one in 20. Says Eric Tyson, co-author of "Taxes 2005 for Dummies," "Higher income earners are more likely to be audited because there is more tax money at stake."

* High incomes compared to the previous year

* Unreported income (investment returns, etc.)

* Income other than basic wages (contract payments, etc.)

* Home-based business: Particular attention is given to returns that claim home businesses in addition to a salary income or excessively high deductions that don't match with the business (for instance, expensive business meals for a virtual administrative assistant.) You should also be careful with how you define your home office. "The room has to be used exclusively for business purposes," said Kent. "You cannot just have a desk in your living room where you have a television set."

* Large business meal and entertainment deductions or excessive business auto use

* Low income with large business deductions: Did you report earning $40,000 and write off a $50,000 car for business? Chances are a tax examiner will find your return warrants a closer look.

* Non-Cash Charitable Deductions

* Hobby Losses: Filing a Schedule C to report income or loss from a sole proprietorship that is not really a business but a hobby is one of the highest risk moves you can make.

* Offshore credit cards

* Large casualty losses: The rules for claiming a casualty loss are very specific, so be sure your loss qualifies before claiming it.

* Having several dependents.

Tax returns that claim the earned income tax credit-a break for those with low-incomes-are also scrutinized more closely by the IRS. That's because its requirements are complex and many honest mistakes are made by those who think they qualify, along with those who intentionally try to increase the credit's payout.

If You Have Legit Deductions, Take Them

This isn't to say that you should be afraid to make honest deductions on your tax return or shy away from credits for which you qualify in order to avoid the IRS. According to Robert G. Nath, author of "The Unofficial Guide to Dealing with the IRS," As long as your deductions and expenses are legitimate and you have documentation, they will be allowed."

In fact, most Americans overpay on their taxes, which is why we highly recommend reading Lower Your Taxes - Big Time: Wealth-Building, Tax-Reduction Secrets from an IRS Insider as soon as possible in 2005 (or you will likely end up paying the government hundreds or even thousands of dollars in taxes that should have been yours to keep.)

Written by a former IRS tax attorney and senior tax law specialist, Sandy Botkin, CPA, Esq., Lower Your Taxes - Big Time is one of the smartest under-twenty-dollar investments anyone could possibly make.

And in the event that you get the dreaded IRS letter in the mail that your tax return is being audited-don't despair. "Just because you get a correspondence audit letter, there's no need to panic," says Nath. "In fact, if you get a letter instead of a call, that indicates the IRS views the inquiry as not particularly earth shattering."

For more money-saving tips in 2005, don't miss these past SixWise.com articles:

* Top 10 Ways NOT to Throw Your Money Away in 2005

* Stop Overpaying the Government Thousands of Dollars for Good

From the free sixwise.com e-newsletter, the Web's #1 most read newsletter with original articles in all 6 areas of life leading to complete wellness.

one time home cleaning Highland Park ..

In The News:

Privacy risks are hiding in plain sight, as your personal data is likely being collected, tracked, and sold without your knowledge.

VenHub, a fully autonomous, AI-powered smart store just opened at the LAX/Metro Transit Center in Los Angeles.

A woman's Facebook account takeover reveals dangerous social engineering tactics and provides lessons on recovery, avoiding scams and enacting stronger security measures.

Shanghai engineers are using 432 walking robots to relocate a complex, preserving Shikumen architecture while creating space for a modern underground hub and cultural center.

Major healthcare data analytics firm Episource had a cybersecurity incident exposing 5 million patients' medical records and personal information in recent breach.

A new sophisticated PayPal scam sends legitimate-looking emails from official PayPal addresses, using phone numbers instead of links to convince victims to download remote access tools.

Fox News' AI Newsletter brings you the latest on this rapidly evolving technology.

The innovative Kara Pod device extracts moisture from air to create mineral-rich water and brew coffee, featuring UV sterilization and compatibility with Nespresso pods.

Gov. Hochul unveiled New York's nuclear power plant project to power a million homes, which faces permit challenges while promising jobs and a cleaner energy future.

SAFE introduces Aerie, an underground luxury bunker combining high-end living with advanced security, wellness amenities and interactive walls simulating panoramic views.

A Facebook scammer posing as Elon Musk tricked a victim with promises of a Tesla and $250,000, requesting gift cards that become untraceable once the codes are shared.

Experience hands-free golfing with the Robera Neo smart caddie that uses AI to follow you, navigate obstacles and carry your clubs with GPS course mapping.

Cybersecurity alert: 16 billion passwords exposed in massive credential database affecting major platforms. Protect your accounts with password managers

The innovative BeBot robot uses electric power to remove pollution from shorelines, covering 20-30 times more area than manual collection while preserving wildlife.

A new ClickFix campaign targets macOS users with fake Spectrum support sites, tricking victims with CAPTCHA failures to paste commands that install information-stealing malware.

AI-powered autonomous trucks from Plus Automation are being tested across the U.S., Europe and Asia to solve logistics challenges while facing regulatory hurdles and labor concerns.

Your health information might feel private and secure with your doctor, but the reality is far more complicated. Data brokers collect a wide range of sensitive health data, from diagnoses and prescription details to personal identifiers, and sell this data to marketers, insurers, and other third parties.

Kepler Robotics has officially introduced its Forerunner K2 "Bumblebee" humanoid robot at the SAIC-GM automotive plant in Shanghai, marking a significant moment in the real-world deployment of advanced robotics.

Scammers never seem to be running out of new ways to try and get their hands on your money – and lately, they've been getting sophisticated.

Thirty people were injured and killed, though the exact number remains currently unknown, when a suicide bomber blew himself up in a Damascus church.

Unexpected password reset alerts signal potential hacking attempts or phishing scams. Learn how to respond and establish stronger security measures for your accounts.

A historic electric airplane flight landed at JFK with passengers, marking a milestone as Beta Technologies demonstrates the practicality and efficiency of electric air travel.

The Chaos ransomware group breached Optima Tax Relief in a double-extortion attack, stealing sensitive customer case files and corporate documents with personal information.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The first human brain-computer interface by Paradromics was completed in 20 minutes, featuring microelectrodes to help paralyzed individuals control computers with thoughts.