| A taxpayer is unlikely to get audited by any one of the | | | | now demand a copy of a receipt or canceled check |
| below ways alone, but a combination of two or more | | | | showing proof of charitable deduction before reporting |
| of below is definitely inviting the IRS to audit you! | | | | this contribution to charity in 2006. |
| 1. Unreported income: | | | | 7. Employee Business Expenses: |
| Remember any company whom you work for has to | | | | Employees that claim high amounts of employee |
| by law provide you with either W-2 or a 1099-Misc or | | | | business expenses, especially if these expenses |
| around January 31st. Thus, if you file a return but fail to | | | | appear to be mostly commuter expenses are most |
| report this income, remember the W-2 and 1099-Misc | | | | susceptible for audits. For example, claiming travel |
| is also being simultaneously reported to IRS, and so | | | | expenses for daily commuting, parking or train tickets |
| you're screaming for an IRS audit. This is also true for | | | | to travel to work in metro cities. As such, these are |
| your bank interest, stock dividends, and capital stock | | | | generally personal expenses if the taxpayer is a W-2 |
| transactions from stock trading activities, these must | | | | employee. |
| also be reported as they too are being reported to the | | | | 8. Claiming Auto mileage: |
| IRS. | | | | Taxpayers keep claiming auto mileage without really |
| 2. Incomplete or poorly prepared tax returns: | | | | understanding the law. Taxpayers can claim auto |
| If you file a tax return with missing or incomplete | | | | expenses in connection to your job for which the |
| information along with several mathematical errors, the | | | | employer does not reimburse them. This is really rare |
| IRS computer will not be able determine what you've | | | | in this day and age when gas prices are very high. Still, |
| filed, then you are definitely inviting an IRS agent to | | | | it is possible for say an employee to make various |
| investigate these omissions and error. | | | | trips to client sites for which the employer does not |
| 3. Consistently using estimates or round numbers on | | | | provide reimbursements. However, on the personal tax |
| your deductions: | | | | return the taxpayer generally claims excessive mileage |
| If a taxpayer is consistently using round numbers or | | | | that includes commuting mileage that is mileage from |
| estimates, it really implies that the taxpayer has been | | | | home to work. This is strictly not allowable per IRS tax |
| either exaggerating or has poor records to | | | | code. |
| substantiate the deductions. Most CPA's and tax | | | | 9. Flagrantly ignoring to file individual tax returns or late |
| professionals recommend the use of exact numbers | | | | returns without proper extensions: |
| 4. Reporting income that appears too low to support | | | | The IRS has consistently audited individual taxpayers |
| taxpayer lifestyle: | | | | who have flagrantly disregarded the law, and |
| A taxpayer who reports mortgage and property tax | | | | consistently ignored the IRS filing deadlines for filing the |
| expenses on his schedule A but showing income from | | | | individual tax returns. All IRS correspondences must be |
| employment incapable of supporting these deductions, | | | | responded timely as ignoring those leads to more |
| this too will be inviting an IRS audit. A taxpayer who | | | | investigations and a potential invitation of an audit. All |
| consistently shows very little taxable income, and | | | | tax returns must be filed on a timely basis along with |
| hence a small tax liability due but has substantial | | | | timely extensions. |
| savings and investment income could also trigger an | | | | 10. Claiming office at home expense: |
| audit. | | | | This is generally the most common area of deduction |
| 5. Drastic changes in income: | | | | that results in triggering IRS audits. The reason is that |
| Substantial income fluctuations can sometimes indicate | | | | the office at home expenses are allowable under |
| that income was underreported somewhere. IRS loves | | | | some very strict rules. The office must be used |
| to investigate strange income fluctuations. | | | | exclusively and regularly for business purposes. The so |
| 6. Taxpayer claiming excessive charitable contributions: | | | | called designated area in the house must be generally |
| There are no average percentages in place to | | | | a room where the family do not entertain, do not use |
| determine what is unreasonable, but most National tax | | | | as a play room for the kids and definitely not be used |
| publications maintain a safe percentage is 2-5% | | | | as a bedroom. |
| percentage a year. But, now in 2006, most CPA's will | | | | |