What Are The Chances Of Me Getting Audited?
I am constantly asked this “million dollar” question. There is no definite answer; however certain factors certainly raise the odds of your tax return getting selected for audit. Contrary to popular belief, very few audits, if any, are selected randomly. However, if your return contains any of these factors, your chances are greater. These factors are not listed in any particular order.
- Higher than average charitable deductions for your income, especially donations of goods, as opposed to cash.
- Large deductions for business travel, meals, and entertainment – Certain occupations just don’t lend themselves to a lot of business entertaining. For example, salesmen typically have large entertainment and travel expenses; tradespeople do not. The IRS will target returns with high deductions in this area for their particular occupation.
- Cash businesses – If you have a business that typically receives a lot of cash from customers, make sure you are keeping accurate records of moneys collected and that cash is being deposited in your business checking account. Any business that does not deposit cash is an open target for an audit.
- Claiming 100% business use of a car – The IRS will not buy any claim that a car is used 100% for business. So keep detailed records of your business trips – mileage logs are critical.
- Consistent losses in a business – If your business shows losses year-after-year, the IRS may claim that it is really a hobby not a real business. There are ways to refute that, but be prepared for a fight.
- Home Office Deduction – Yes, more & more people work from home these days. But the IRS is pretty good at identifying businesses that are not likely to qualify for a home office deduction, especially if you also have a business location outside the home.
- Improper Filing Status - Many people file as “Single” or as “Head of household” when they should be filing as “married filing separately”. The rules are very clear on this, so be sure to select your correct filing status.
Overall, the number of IRS audits has been down the past couple of years, so the chances of getting audited is lower than in the past. But, if you want to minimize the odds, pay attention to these critical areas.
Email Sign Up
Submit your email to reserve our monthly tax tips.
Licensed both in New Jersey and New York, the practice focuses on small and medium-sized businesses including restaurants. We specialize in working with professionals like attorneys and doctors where our attention to detail and sound accounting practices has provided significant benefits to our clients.
Our office is located in New Brunswick.
Contact us by contact form or call (732) 846-1700 to schedule an appointment.