Worried about a tax audit? Avoid these red IRS flags

(NEXSTAR) – Have you ever felt this feeling when you see an unexpected letter from the Internal Revenue Service (IRS)? This can be hard not to do, even if you have no reason to fear an audit.

To be calm during the tax season, it’s important to know how the IRS selects people for verification. It’s also important to make sure you’re not one of them.

“People don’t realize that people aren’t involved in choosing a tax return to check,” said David Clasing, a certified public accountant and tax attorney. “It’s all done by computers using statistical analysis software, and there is an expression in the profession: pigs are getting fat, pigs are being killed.”

The ranking says that each tax return receives a numerical score, with the worst – 999, then 998, 997 and so on. The state audit usually starts in the 999s and goes on.

Here are some of the red flags to avoid when paying taxes this year:

Round numbers

If the IRS sees neat round figures throughout the tax return, it’s a red flag.

“If you have a business and you put a whole bunch of round numbers in your tax return, I’m talking about everything … it ends in zero,” said Clinging. figures from his rear and kills them on return, and they are invalid, or someone uses estimates ”.

He added that assessments may be appropriate in certain situations, but assessments must be substantiated and disclosed.

Work from home

The COVID-19 pandemic has forced many people to work from home, but taxpayers need to be careful when it comes to detail.

“I would say that a home office deduction is one that leads to a lot of checks,” Clasing said. “If your employer gives you an office outside the home for work, you also can’t take away your home office.”

You can only claim this deduction in very specific situations, such as if you are self-employed or working as an independent contractor. In fact, the IRS says that anyone who earns W-2 (and does not earn income from side business, concert work, or any other form of self-employment) is is not eligible for a home office deductioneven if they are work from home during a pandemic.

If you really have the qualifications, Clushing said that you make sure that the office is designed for work, without anything personal – no TVs, no video games, no gaming computers. “The only thing going on in this space is work,” Clusting said.

Repetitive offenders

When it comes to red flags that the IRS is looking for, becoming a habitual bully can be dangerous.

Without any consequences, the tax evader can continue to use the same tactics and “as long as they are caught, they will be so far from this line of ‘negligent behavior and they do not understand the law’ versus ‘this’.” it is a deliberate tax evasion and they should be in jail, ”Clasing said.

Creating tax crime only facilitates the work of the government, eliminating the possibility of honest mistake.

Health insurance

Thinking about deducting health insurance costs? Make sure you follow the IRS instructions on this.

You can deduct expenses you paid during the year for medical and dental care for yourself, your spouse and dependents, but be sure to deduct only the amount of your total medical expenses in excess of 7.5% of your adjusted gross income.

See the following reasonable costs on the IRS website.


Thinking of demanding a charitable donation in your next tax return? If it was over $ 250, make sure you have it written confirmation from the charity.

The IRS is also looking for people who claim to have donated large, unlikely sums.

“I see people constantly crossing the line with it,” Clasing said. “If you earn $ 30,000 a year but give $ 20,000 a year to your church, they won’t buy it.

Offshore accounts

Keeping money in an offshore account is not illegal, but that doesn’t mean you don’t have to pay taxes on it.

“All this requires foreign information,” said Clasing. “Offshore account with more than 10 thousand … [you need] FBAR “- Report of foreign banks and financial accounts -” for reporting on bank accounts. “

Even if you have not received taxable income, the IRS requires those with offshore accounts to be $ 10,000 or more – in at any time during the tax year – file an FBAR.

“They will prosecute you for providing foreign information and can check for criminal charges for not receiving foreign offshore income.”

He added that he had seen the government in some cases impose 100% fines on offshore accounts.

How can you protect yourself?

“I tell all my clients to prepare each report as if it were to be audited,” Clusing said, “and you shouldn’t be afraid to audit. If you knew what was waiting for you to check, what type of tax return would you prepare? ”

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