IRS Red Flags

We’re not tax professionals and we strongly recommend seeking the advice of a tax professional if you have any of these red flags.

We have garnered this info from reputable tax professionals like Kiplinger Personal Finance.

1. Making too much money

Yes, making too much money can get you audited. First, it is literally based on your income, meaning the more you earn the greater your chances of an audit BUT, it also goes for a company whom is doing very well in their industry.

As an example, if the average for your industry is $250k a year and you are doing $1million, your chances of an audit increase as they want to know if you’re cheating the system.

2. Not reporting all your taxable income

Just report all income as the IRS has copies of all of your reportable¹ income anyway. At some point they will catch up.

3. Don’t take higher than average deductions

Taking huge deductions compared to your income is a huge red flag. Who is going to believe you have $80,000 in deductions on a $100,000 income?

But, if you have the proper paperwork to back up your deductions, go for it. If it’s legit and you get audited, you can back it up and should be OK.

4. Don’t take too many large charitable deductions

As with above, if you can back it up, go for it. Here’s the issue, the IRS knows how much, on average, someone in your income level donates and if you are too far off of the median… that may trigger an audit.

5. The fact that you run a business

Yep, just being an entrepreneur can trigger an audit. Not much to do here except be above board and back everything up with receipts and other paperwork.

6. Don’t claim 100% business usage of your vehicle

No way around it, this one is a big one as it’s very rare that one uses a vehicle for business purposes only.

If you want to claim this type of high deduction, make sure you have very detailed mileage tracking as well as a calendar that matches the miles traveled. Not a guarantee, but it’s a huge help.

7. Making huge deductions for meals and travel

To get this one, there are VERY strict guidelines, we’re talking details:

• The Amount
• Place
• People there
• Business purpose
• Nature of the discussion/meeting
• All receipts

If you can’t really prove (justify) that $5000 meal, don’t try it.

8. Dealing in a lot of cash

…or all cash. The IRS simply does not like what it can not track and if you do a lot of cash transactions (and the bigger the better it is for your chances of getting audited), the IRS will look into it.

If you deposit $10,000 in cash into your bank account, your bank is obligated to rat you out to the IRS. And don’t try to be cute either, $9000 today and $1000 tomorrow as that will trigger them as well.

9. Too many net losses

You are supposed to be in business in order to make money. If you are constantly losing money (or claiming to lose money) the IRS will look into this matter.

10. Don’t file late

The IRS also frowns on those who are constantly late. This is a trigger for an audit.

11. Do not make errors or round numbers up or down

The IRS wants every cent owed to them and, believe it or not, they want to give you every cent you may be owed as well. If you are rounding numbers up/down, that makes this impossible.

Secondly, having errors in your return is an absolute sure fire way to trigger an audit, so keep those numbers right.

12. Don’t accept digital currencies (yet)

Yes, yes, it’s the wave of the future but the wave of the present is that the IRS does not like digital currencies. Remember earlier when I said that the IRS likes to “track” your money? Well, that’s a lot harder with anonymous digital currencies.

Notes:

1. Any work that was done “over the table” whether W-2 or 1099’d

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So, have you had any IRS issues that you can share? How did they work out for you? Let us know in the comments.

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