High Risk IRS Audit Areas

While IRS audits are down due to lack of personnel and resources, there are areas that can be tweaked to avoid an IRS tax audit. Since taxpayers are now more intelligently selected in order the catch the biggest cheaters, there are some areas that we know throw up red flags.

One of the high-risk audit areas is high wages. If you make more than $100,000 your odds of being audited increases by almost half. Your chances of being audited by the IRS increases if you have a large amount of itemized deductions, especially if they exceed the IRS target amount. Another flag is if you claim tax shelter investment losses on your tax return. You may be audited if you have complex investment or business expenses on your return. If you own or work in a business that receives cash and/or tips in the ordinary course of business, then you may get audited. Other audit flags are if your business expenses are large in relation to your income on your tax return, rental expenses, a prior IRS audit which resulted in a tax deficiency, you have complex tax transactions without explanation on your return, you are a share holder or partner in an audited partnership or corporation or if you claim large cash contributions to charities in relation to your income on your tax return. Of course with any taxpayer, if an informant has given the IRS information, you can expect an audit.

With that said, you should not exclude a deduction or beef up your wages just to avoid getting audited. While less than 2% of tax payers are audited every year, it does happen and sometimes just because your industry was chosen for data purposes. Always be honest and accurately report income, deductions, losses and gains, just make sure that you have the documentation to support what you have filed in case of an audit. While these areas place you at high risk, it does not mean that you are doing anything wrong. Always take your time, read and re-read your return before signing and sending and make sure that your documentation is clear, precise and accurate.