How to Know If You're at Risk for an IRS Audit

The audit is the most dreaded tool of the Internal Revenue Service, a word that many fear and loathe more than almost any other. This is due to the fact that receiving an audit from the IRS is a process that can be slightly less pleasant than getting teeth pulled without anesthetic. There are, however, risk factors that can help you to know if you're at an especially high risk for an IRS audit.

Difficulty: Moderate

Instructions

Things You'll Need:

• Time
• Organized receipts
• Basic knowledge

1. First of all, gather together all of your tax information, including last year's filed forms, or ask your tax professional to gather that information for you.

2. Next, see if you filed any incorrect information whatsoever. If your name, social security number, or any other basic background information on the forms is incorrect, you're put at an exponentially higher risk of receiving an audit from the IRS.

3. Look and see if you claimed any deductions for business losses. If you did, the IRS will be much more interested in poring over your books and making sure that the "losses" were all legitimate.

4. Determine if your claimed business deductions seem reasonable, in terms of deductions for transportation, food and business-related entertainment. If these numbers seem extraordinarily high, then your chances of being audited are rather good.

5. Figure out whether your job is one that the IRS would consider to be a "cash-based" business. If you regularly are paid in cash, work in retail, or work in a job where a significant part of your salary comes in the form of cash tips, the odds of being audited are much higher.

6. Look and see if you claimed any large itemized deductions. If you did, especially if the deduction in question was relatively large, then you may well be receiving a phone call from the IRS to arrange for an audit.

Tips & Warnings

• * In order to avoid an audit in the future, remember these basic warning signs when preparing your taxes next year.
• * Don't be completely scared away from deductions just because you're afraid of being audited. On the other hand, don't inflate the numbers on your tax deductions. The IRS is keenly aware of common misstatements of fact that the average taxpayer may try to slip into their taxes.
• * If in doubt, ask someone at the IRS or look at their website.
• * Don't get greedy. If you really think that you aren't sure what you can deduct, hire a tax professional to do your taxes for you. This is the best way to avoid triggering an IRS audit by some simple mistake.

Who Can Help:

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Resources

• The IRS website