IRS Audits: 4 Famous Red Flags
Four Red Audit Flags for the IRS
April 10, 2011 — -- We recently reported new data showing that the IRS audits the wealthy more than others. In fact audits of consumers earning between $5 million and $10 million jumped 54 percent last year, according to a report from CNN Money. That said, everyone, regardless of income, is at risk. Even if you file a squeaky clean return, the IRS makes mistakes and comes after the wrong people. It's happened to me. A couple years ago the IRS claimed I forgot to state thousands of dollars worth of income when it was clearly stated on my return.
Needless to say, the IRS is vigilant in its quest to find inaccuracies on our tax returns. For those who've yet to file (the tax deadline is April 18), here are some line items that tend to come under the microscope more than others.
1. Stated Income
Don't forget to report any income. State every single penny listed on your W2, 1099 and other income statements. The IRS' computers track all of our income forms. I usually verify my income statements with year-end pay stubs to make sure the numbers match.
2. Charitable Donations
The IRS examines our charitable contributions closely. It looks to see if our donations are out of the ordinary for other tax payers in a similar tax bracket. For example, the average charitable contribution for those earning between $50,000 and $100,000 a year is a little more than $2,600, according to the IRS.
[Related: What To Do If You Can't Pay Your Taxes]
3. Auto Mileage
Because tax filers have fudged this itemized expense in the past, it's now become a red flag for the IRS. As a refresher, if you are searching for a job or self-employed or drove around for a charitable event in 2010, the IRS will generally let you deduct the related auto mileage expense from your taxable income. But you must keep a record of your trips including the distance your drove, the purpose of the trip and have a receipt from the gas station if possible.
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