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IRS Tax Audit: Can You Avoid It?

March 23rd, 2011
IRS Tax Audit: Can You Avoid It?

The more money you have, the better chance you have at being audited. Only about 1 percent of all tax-paying individuals are scrutinized with an IRS tax audit in any given year. However, if your income is $1 million or more, your chance of an IRS tax audit dramatically increases, to about 8 percent. Kiplinger recently put that number into perspective: according to the publication, it accounts for about one out of every 12 returns.

So how does the IRS choose its lucky few? Kiplinger points out these ways that could increase your chance of an IRS tax audit.

    1. You didn't report all your taxable income.

    2. You claimed the home-buyer credit.

    3. You claimed a large charitable deduction.

    4. You claimed a home office deduction.

    5. You liberally claimed tax deductions like business meals, travel and entertainment.

    6. You claimed 100% business use of your vehicle.

    7. You claimed a loss for a hobby activity.

    8. You're in a cash-intensive business (like driving a taxi or running a bar).

    9. You neglected to report a foreign/offshore bank account.

    10. You engaged in a cash transaction of more than $10,000 with a bank, casino or other business.

    11. You made a math error in your favor.

    12. Your deductions are higher than average.

Of course, don't be afraid to take tax deductions or claim tax credit if you have nothing to hide. The key is to be organized and to leave a paper trail that can help you expedite any IRS tax audit that comes your way. For more on the subject, take a look at our page on tax planning or, if you've already found yourself facing tax problems, read about our legal and tax services for complicated tax assistance.

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