Check out the other audit risks
Income Risk Large Itemized Deductions Unreported Income
Rental Income Self-Employment Home Office
Unreported Alimony Automobile Expenses
High-Risk Tax Audit Areas Related to Income
IRS computers compare all tax returns to the national Discriminate Information Function (DIF) system average. The IRS calculates the DIF score by using a closely-guarded formula. Tax returns with the highest DIF scores are scrutinized by experienced IRS examining officers who determine which tax returns provide the best chance for collecting additional taxes, interest, and tax penalties.
Below are the risk items related to income
Your chance of being audit rises as your income increases. Here are some red flags to the IRS:
- You claim tax shelter investment losses on your tax return.
- You have complex investment or business expenses on your tax return.
- You own or work in a business which receives cash and/or tips in the ordinary course of business.
- Your business expenses are large in relation to your income on your tax return.
- You have rental expenses on your tax return.
- A prior IRS audit resulted in a tax deficiency.
- You have complex tax transactions without explanations on your tax return.
- You are a shareholder or partner in an audited partnership or corporation.
- You claim large cash contributions to charities in relation to your income on your tax return.
- An informant has given information to the IRS.
Don’t let these factors influence how you file your tax return. You must report all income and take all your deductions to ensure you prepare your tax return accurately and completely.
Defend Yourself!
You are entitled to take every tax deduction that you qualify for and you should never be scared by the potential of an IRS tax audit. You must use common sense when making decisions about deductions and hire a qualified CPA to help you through the minefield of taxes