Red Flags for Tax Auditors

No one wants to see an Internal Revenue Service (IRS) auditor show up at their door.  The IRS can’t audit every American’s tax return, so it relies on guidelines to select the ones most deserving of its attention.

The Chance of an Audit Rises with Income

Deviations from the Mean

The IRS has a scoring system it calls the Discriminant Information Function that is based on the deduction, credit, and exemption norms for taxpayers in each of the income brackets.  The IRS does not disclose its formula for identifying aberrations that trigger an audit, but it helps if your return is within the range of others of similar income.

When a Business is Really a Hobby

Non-Reporting of Income

The IRS receives income information from employers and financial institutions.  Individuals who overlook reported income are easily identified and may provoke greater scrutiny.

Discrepancies Between Exes

When divorced spouses prepare individual tax returns, the IRS compares the separate submissions to identify instances where alimony payments are reported on one return but alimony income goes unreported on the contra party’s return.

Claiming Rental Losses

1.The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation
2. Kiplinger.com, 2021

The content is developed from sources believed to be providing accurate information.The information in the material in not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information, should not be considered a solicitation for the purchase or sale of any security.

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