Are you doing your taxes? Kiplinger's Personal Finance magazine has put together a list of 14 audit red flags. Here's what's included among them:
- You make too much money. The IRS will target those with incomes above $200,000. You have a 1 in 30 chance of being audited.
- Not reporting taxable income. You must report all 1099s and W-2s, even if you believe them to be incorrect. (Deal with the discrepancies after filing.)
- You give a lot of money to charity. The IRS knows what others who make similar income to you tend to give and will question you if you're claiming too much.
- Claiming day-trading losses on Schedule C.
- Claiming rental losses.
- Deducting business meals, travel and entertainment.
- Claiming 100% business use of a vehicle. Be careful, salespeople! To counter any possible IRS questions, I know someone who keeps a paper log on the dashboard and writes down every mile for work, the date and what it was for. If you do want to claim all the cost for a business expense, be sure you have another vehicle too.
- Writing off a loss for a hobby.
- Claiming a home office deduction.
- Taking an alimony deduction.
- Running a business where almost all money is in cash.
- Not reporting a foreign bank account.
- Engaging in currency transactions.
- Taking excessive deductions. Again, the IRS knows what is outside normal bounds based on your income.
For further reading:
- What to do when you can't pay your taxes
- Key to preventing tax identity theft
IRS Free File program now up and running
Clark Howard is a nationally syndicated consumer advice expert
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