5 Audit Red Flags

CNN Money has a list of 5 tax items that may red flag your return for audit by the IRS. Keep in mind that the IRS keeps what actually goes into the decision very secret, so this is just a guess. It's a pretty good guess based upon experience, but it can change at any time.

1. Overkill on Charitable Contributions

Aah, the prototypical "fudge" number on people's tax returns. These have been abused so long (and now in lots of more ways) that the IRS will look at any return that has a much higher percentage of charitable contributions than other taxpayers in their income bracket.

2. Self-Employed Expenses

Another oldie but goodie. People have been writing off all kinds of items as "business deductions" for so long that taking any sort of S/E expenses (especially if you have a full time job elsewhere) might as well be printed on bright red paper and have flashing lights on it. I would add abuse of the hobby loss rules to this as well.

3. Above Average Deductions

The IRS uses a computer matching program that scores your return against others in your tax bracket in various ways such as deductions, credits, and exclusions. If your score is too high, you'll get flagged for audit. Does that mean you should tailor your return to score low? No, you should take every deduction and credit you are entitled to. Just make sure that you are entitled to it and that you keep documentation so that it can withstand an audit.

4. Making Six Figures

IRS audit records have shown for years that you are much more likely to get selected for audit if you make $200,000 than if you make $20,000,000. The simple fact is that the more money you make the more likely you are to use a professional that is legally bound to file a correct return. People making low six figures can still file their own returns and may be tempted to stretch deductions (see #1 and #2) to lower their tax bite.

5. Careless Omissions

If you don't attach a W-2, or worse yet don't include it income, you'll be flagged immediately as part of the IRS push to match documents like W-2s and 1099s to tax returns. So, report everything!