Insider Tips: The Most Common Reasons Tax Returns Get Audited
For its Insider Tips From the Pros package, Kiplinger’s spoke with dozens of experts in fields ranging from college aid to travel to glean insights they apply to their own financial lives and share with their own family and friends. Frank Degen, immediate past president of the National Association of Enrolled Agents, revealed these tips for avoiding a tax audit:
"Only about 1% of taxpayers are audited. What triggers an audit is generally something on the tax return that’s out of the ordinary," he says. "For example, if you have a side business and file a Schedule C, the IRS will flag large losses, particularly if they offset other income. The IRS is looking to see if your activity is a hobby as opposed to a business.
"On Schedule A, large charitable contributions could be a red flag because now you have to have a receipt for every item," he continues. "I don’t ask to see every receipt for charitable contributions, but I will specifically ask a client if he or she has receipts for all contributions.
Unreimbursed business expenses are another item you see people get flagged on," he says. "If your preparer isn’t asking serious questions about these items, you need a new preparer."
Discover even more ways to attract unwanted scrutiny in our popular collection of 14 Red Flags for IRS Auditors.
Get Tax Tips by e-mail for FREE. Registered users on Kiplinger.com can sign up to receive more than 20 valuable updates. Register Now »
Editor's Picks From Kiplinger
- Insider Tips: How Investors Can Prosper in 2014
- Insider Tips: How to Budget and Save Better in 2014
- Insider Tips: Smart Money Moves to Save Big Bucks
- Insider Tips: How to Save on Multiple Airline Tickets
- Insider Tips from the Financial Pros
- SLIDE SHOW: The Most-Overlooked Tax Deductions
- SLIDE SHOW: 14 IRS Audit Red Flags
- What the Odds Are That Your Tax Return Will Be Audited, and What to Do If It Is
- CALCULATOR: What's Your Risk of a Tax Audit?