How to Identify IRS Audit Red Flags

Each year, the IRS audits thousands of people. Some of these are random audits but many returns have specific red flags for audits. Before you file your taxes, you need to identify what red flags the IRS looks for on tax returns and how you can avoid them.

Things You'll Need

• Tax return
• W-2
• Form 1099
• Receipts
• Schedule C

Instructions

1. Check that you report all the income you receive on your return. The IRS also receives a copy of every 1099 you receive, so if the two do not add up, this sends up a red flag.

2. Realize that if you file a Schedule C, the IRS is more likely to audit you. Studies have shown there is an increase in audits among those who file a Schedule C in addition to Form 1040.

3. Determine if your charitable contributions are excessive when compared to your income. Charitable contributions larger than the average in your tax bracket are often red-flagged. Keep every receipt for charitable contributions.

4. Keep all receipts and records for every deduction you take if you decide to itemize. Itemizing deductions raises red flags for the IRS.

5. Avoid using round numbers on your tax return. Specific numbers appear more realistic and standard round numbers may attract suspicion.

6. Make sure your return is complete and well-prepared. If you use a certified public accountant or tax software, this is most likely not a problem. If you choose to prepare your return yourself, fill out every section that's required and print legibly and correctly. Also ensure that the information on your federal return matches the information on your state return, if your state requires one.

Tips & Warnings

• Use tax software or a CPA to help you identify and avoid red flags for an IRS audit.