Who is most likely to be audited?
IRS audits are among the most feared situations for most taxpayers, in part because they are so invasive and carry with them the potential for back taxes to be assessed, as well as the potential for additional interest, fines and other penalties to be assessed. Fortunately, there are far more taxpayers than there are IRS employees available to do audits, so the IRS must be choosy about who it decides to audit in any given year. As a result, there are certain red flags that can trigger an audit, and knowing who is most likely to be audited in advance can help you avoid the dreaded IRS auditing letter.
Candidates for an IRS Audit
Technically, anyone can be audited, but only a very small percentage of taxpayers are. Among the audit triggers that set the IRS into action are an income higher than $200,000 per year, filing taxes by hand, opening bank accounts in foreign countries, and declaring a loss on a Schedule C self employment tax filing form. You may also trigger an audit if you have donated more than 10% of your gross income to charity and claimed this as a charitable deduction, if you have deposited large amounts of money into your checking or savings account, or if you have a large potential for cash income based on your job, such as being a flea market vendor.
If you are concerned about an IRS audit, the best thing to do is be proactive. Keep careful records of all income earned and deductions made. Hold on to tax records for at least three years, or keep them for seven to be on the safe side. Report all income earned from all sources. Finally, you may wish to consult a tax attorney or other tax professional before submitting your taxes, and you absolutely should pursue legal help in the event that you do face an audit.