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Are you at risk of a federal tax audit?

The Internal Revenue Service only audits approximately 1 percent of all individual tax returns the agency receives each year, but there are certain red flags that could make yours more likely to be chosen.

Below are 10 indicators that could potentially make you a target of an IRS audit.

1. Leaving out information.

If you forget to complete a line or skip a section, an auditor might suspect other irregularities are present.

2. Making errors.

While nobody is perfect, a transposed digit on your Social Security Number or wrong calculation could cause agents to decide to go over your return with a fine-toothed comb looking for other mistakes.

3. Failing to report all of your taxable income.

Every W-2 and 1099 form that you receive must be reported. Employers copy the IRS with these documents so your return should dovetail with what they have.

4. Earning a lot of money.

Those earning over $200,000 have an increased chance of being chosen for an audit. Those in that income bracket have audit rates of nearly 4 percent, or around one in 27 returns.

5. Having too many deductions.

Take what you're legally allowed, but don't exaggerate or lie on your return. If your return is skewed out of line with others on par with your income, it will stand out.

6. Too many donations.

If your charitable donations exceed what most people who earn your income give, that's another red flag.

7. Having a small business.

Especially if it takes in mainly cash or there are tips involved, like bars, barbershops or laundromats, the IRS knows that you could underreport your actual earnings.

8. Deductions for home offices.

This home office can only be used to conduct your business, and you should be prepared to prove it.

9. Not filing your taxes.

The penalties are stiff for stiffing Uncle Sam, and brings your character into question.

10. Failing to report foreign bank accounts.

The IRS has tried to get banks in foreign countries to spill the beans on Americans' accounts abroad. Make sure that you claim all of your accounts.

If you are notified by mail or telephone that you are being audited, retaining a Missouri tax attorney can protect your rights.

Source: My Banktracker, "10 IRS Audit Red Flags," Daryl Paranada, accessed Jan. 13, 2017

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The Law Firm of Lance R. Drury
150 Merchant Street
Ste. Genevieve, MO 63670

Phone: 314-200-0003
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