Top IRS Tax Audit Triggers

Many are beginning to think about the next tax season, even though the tax season is over. While some people just dream of a big refund, others plan and strategize how to avoid the top IRS audit triggers. In reality, only a small percentage of tax returns are chosen for IRS tax audits. In 2015, less than 1% of tax returns were audited. Although the IRS doesn’t give us any information about what might trigger an audit in 2015, there are certainly a few things to keep in mind.

You Have Earned More Than One-million Dollars

You will be targeted if you earn more than one million dollars. The Internal Revenue Service Data shows that returns of income between $100k and $199k were audited at an audit rate.64%, while returns of income of $1 million or more were audited at an audit rate of 8.42%.

You Have Had Significant Business Deductions Or Were Operating At A Loss

If a business deduction is excessive compared to income earned by the business, the IRS will investigate. Keep all documentation supporting your deduction. Also, if you operate at a loss for longer than three years, an IRS tax audit will be issued.

Taxpayers who file Schedule C are suspect, as it is easy to misuse certain tax deductions. It is a common error to take a business deduction for personal use, such as a vehicle expense, business travel expense, or home office deduction.

You Took Large Charitable Deductions.

If these deductions are excessively high in comparison to your income, it will be suspicious. Keep detailed records of all cash and property contributions.

You Didn’t Report All Your Income.

This information is sent to IRS if you receive a W-2 from a business reporting income. An audit will be initiated if you fail to report income from these sources on the tax return. To ensure you receive all tax forms, make sure you keep all forms. It is okay to not have these forms. If you find an error on your income tax return, please inform the business about it. The IRS will correct it. The IRS will not accept any information that isn’t corrected.

Loss Of Rental Property Tax

An audit may be required if you claimed rental property losses in your tax return. The IRS is very strict about these types of losses and may audit you. These losses cannot be fully deducted if you are a realty professional or actively involved in renting your property. Real estate professionals must participate in real property for more than 750 hours per year and spend at least 50% of their work hours in realty.

Taxpayers who claim to be real estate professionals are subject to the IRS’s strictest scrutiny. You can deduct $25,000 for property losses if you aren’t a real estate professional. This deduction starts to phase out when your income exceeds $100,000.

Can foreign bank accounts be used to trigger an IRS tax audit

An IRS audit may be initiated if you fail to report foreign accounts. You must report any accounts you have overseas. Failure to do so could result in severe IRS penalties.

FinCEN Form 114 (” FBAR”) must file by April 15th in order to report foreign accounts that have an extension to October 15. The rule of thumb is: Anyone with a financial interest or signature authority over any foreign bank account or financial accounts must file an FBAAR.

Protect yourself from an IRS audit by hiring a tax lawyer. A tax attorney can give you great reassurance knowing that they are experts in tax law. There are many options available to you if the resolution is required, such as a payment plan and an offer in compromise.

This article was written by Alla Tenina. Alla is one of the best IRS Tax attorneys in Los Angeles California, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.