Matter & Substance
  June 25, 2015

Red Flags for IRS Audits

In attending various tax conferences that discuss this topic in detail, I have compiled the following list of "issues" that might trigger a tax audit:

  • Making a lot of money or large fluctuations of income
  • Making sure you are reporting all of your income, especially if you're a business. This can be a grey area if you operate a cash business reported on your Schedule C, such as a taxi service, car wash, bar, or hair salon
  • Reporting high mortgage interest deductions
  • Reporting large charitable donations, specifically regarding property donations
  • Reporting rental losses. There are many complicated rules regarding real estate professionals vs non real estate professionals, passive loss issues, and basis
  • Reporting alimony deductions if the recipient does not pick up the income
  • Reporting hobby losses
  • Reporting excessive business expenses, specifically meals, travel & entertainment
  • Reporting foreign accounts
  • Reporting 100% business use of vehicles
  • Reporting day trading losses and failing to report winnings
  • Claiming a home office deduction
  • Reporting gains/losses from currency transactions
  • Reporting NOL carryforwards and carrybacks
  • Claiming a rehabilitation tax credit
  • Reporting a prior year minimum tax credit carryforward

This post is not to say that you are not entitled to the above listed deductions/credits, but know that if any of these items show up on your income tax return that you are putting yourself in a position to be at a higher risk of audit. With proper substantiation, these audits can go smoothly, but without it you may have the items disallowed.