Each year, the IRS red flags tax returns for a closer look. If something looks “off,” that return could be audited. CNN Money has identified the following tax audit red flags to avoid:
- Being too charitable: The IRS knows what’s “average” and “reasonable” for charitable contributions at each income level. If you claim deductions above that average, your return could be flagged.
- Home office deduction: This isn’t as big a red flag as it used to be, but it is still something that the IRS looks at closely.
- Being rich: If you are wealthy, the IRS might take a closer look at your tax return, no matter what. According to CNN Money, the audit rate is one percent overall. But when you make between $1 million and $5 million, the rate is nine percent. It goes even higher the more you make.
- Claiming an already-claimed dependent: Only one person can claim a dependent on a tax form. If your sibling already claims your elderly mother, or if your ex claims your child, you can’t make the same claim — or there’s a good chance you’ll be audited. Work out who gets to claim a dependent ahead of time.
- Overseas accounts: When you have money abroad, the IRS is likely to take a closer look at your tax return.
- Claiming the EITC: This is a refundable credit, so claiming it means that the IRS wants to make sure you truly qualify.
In most cases, the IRS simply asks you to provide documentation on an audit. The vast majority of audits are handled through the mail. Make sure you document all of your deductions and credits so that you can furnish the “proof” that you deserve your tax break. If you have the right documentation, any audit can be taken care of quickly.