Events That Trigger Audits

Some tax returns are more likely to be audited than others.  Why is this?  I can think of eleven practices that lead to a greater risk of audit.   First is using a “sketchy” tax preparer.  This is one who promises large refunds and puts bogus deductions you did not authorize.  Always review your return – you are legally responsible for its contents.  Second is failing to file your taxes.  Always file the return even if you cannot pay.  This alone avoids several tax penalties.  Third and fourth are owning a business and/or claiming a

 

 

home office.  The IRS looks closely at these returns.

Fifth is simply being rich!  One percent of taxpayers are audited.  However, if you earn between one and five million dollars, the percentage goes up to 7% and if you earn between 5 and 10 million the percentage is 21%.  Earning above 10 million pushes your chance of audit to 30%!

Sixth is having foreign assets.  The IRS always looks more closely at these situations.  The seventh practice also relates to investments.  This bad practice is guessing at the value or basis of assets sold during the year.  You must always have documentary proof of these values.

The eighth item is very common, it is simply making stupid math mistakes.  Always check your work.  Another trigger to an audit is claiming extremely large donations.  Tenth is doing something shady on your return and then bragging about it to “friends.”  These friends often become whistle blowers.

The final trigger is simply having prior audits.  Those who are audited are often audited again.