3 Red Flags that Could Result in a Full-Blown IRS Audit

Even though the IRS only audited 0.86% of all individual tax returns in 2014, there are certain reasons why they might shower your particular tax return with unwanted attention.

Of course, this could depend on a number of factors and not limited to math errors, types of deductions claimed or even the business you’re with.

That said, while there’s no sure way by which you could avoid an IRS exam totally, here are 3 red flags that could increase your chances of having to deal with a full-blown exam:

#1: Making a Lot of Money

Even though the audit rate in this instance is only one in 116, the odds of you having to deal with an audit increase dramatically with the more money you make. Actually, those who make more $200000 a month face and one in 37 chance while millionaires are faced with a one in 13 chance.

Of course, this doesn’t mean you should make less but actually keep in mind that declaring it draws attention that you should be ready for.

#2: Claiming Higher-Than-Average Deductions

In comparison to your income, if you deductions are usually larger, then this might draw their attention too. However, if you do have documentation for the deductions, then don’t hesitate to claim for it. Whatever it is, you don’t have to pay the IRS more tax than you owe.

#3: If You Are A Small Business Owner

While Schedule C helps when it comes to tax deductions for those who are self-employed, IRS agents are also aware of the excess tax deductions claimed and the income usually not reported leading to an audit.

In particular, cash-intensive businesses such as taxi services, hair salons and restaurants as well as those small businesses that report net losses using Schedule C also come under scrutiny.