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Attracting An IRS Audit

Attracting An IRS Audit

Attracting an audit from the IRS is the last thing that you want to do, however, sometimes it is inevitable. There are certain red flags that the IRS looks for that we will cover below. Some of these red flags can be avoided while others cannot, but clearly it is better to be aware so that you can avoid them if possible.

Making too much money or making too little money can cause the IRS to audit you. The rate in which high income earners are audited is almost 3% more than people that did not make that much money. This is something that cannot be avoided if you or your company brings in a lot of money. If your company makes too little money the IRS can also become suspicious.

Foreign bank accounts are a huge red flag to the IRS because businesses have been known to hide money in foreign accounts. If you have a foreign account make sure to report it. Also make sure everything involved with the account is legitimate.

There is another way to attract an audit and it is by not reporting all of your taxable income. All taxable income must always be reported and documented.

Sudden dramatic increases or decreases in income can also be suspicious activity to the IRS. They like to investigate when they see large changes in income. This is understandable because they want to know exactly what changed.

Owning your own company is a way to get audited. The IRS always wants to make sure that things are being done by the book. They like to audit people that own their own business to make sure that they are following all of the rules and laws.

Operating a business that thrives off of using cash only is a definite way to get audited. The IRS needs to see a paper trail when it comes to businesses and operating mostly on a cash basis does not lend itself to verifiable documentation such as credit receipts.

The IRS will be more likely to audit you if you have an unusual amount of deductions. They will check to see exactly what you are deducting and will require backup documentation. If you work out of your home, be careful to follow the rules regarding home office deductions as they are frequently abused and are, therefore, an obvious red flag to the IRS.

The IRS monitors all large currency transactions. If transactions dealing with large amounts of currency are constantly being made then that is a reason the IRS may decide to audit you. They keep track of large purchases at casinos and even car dealerships.

If you have any questions regarding this topic you can contact AttorneysTaxRelief for all of your tax needs and questions. We are there to help!