Dread the thought of an IRS audit? While IRS staffers won’t say exactly how they determine whom to audit, they admit that a few specific items may trigger an audit.
- Itemized deductions. The IRS looks more closely at returns with itemized deductions than those with the standard deduction. If you are entitled to take deductions, go ahead. Just be sure to hang onto your receipts.
- Hobby losses. You’re more likely to be targeted for an audit if your side business reports a loss every year. Remember that Schedule C filers are scrutinized closely.
- Home office deductions. Be careful with your home office deduction or the IRS may come knocking on your door. The room has to be solely for business purposes, and the deduction is limited to the actual space your office occupies.
- Casualty losses. The first $100 in losses is not deductible. Casualty losses must be the result of a sudden event rather than gradual wear and tear.
- High income. The IRS targets the high-income brackets since there is more tax money at stake. If you earn $100,000 or more, you have a one in 20 chance of being audited. Your only defense is to know the rules and avoid excessive deductions.
These are general guidelines. You may want to discuss your specific tax situation with your tax consultant.