Five common triggers for a potential tax audit
NEW YORK ” There are certain mistakes or situations that are more likely than others to attract the attention of the Internal Revenue Service. Here are some things experts say can cause the IRS to scrutinize your tax return:
1. Mathematical errors.
The IRS checks every return for math mistakes and if it finds a computation error that resulted in an underpayment of tax, will send a letter with the corrected figures and a bill for the balance due.
2. Differences between documents and returns.
If the IRS finds a mismatch between numbers you use on your return and what appears on your W-2s, 1099 statements or other documents, you’ll likely get a letter asking you to explain the discrepancies.
3. Unusual, or unusually large, charitable deductions.
Making in-kind donations like a car that is valued at more than $500 requires attaching a specific acknowledgment form, 1098-C, from the charity. Canceled checks or receipts are typically all that is needed to back up other charitable deductions. But for anything over $250, you need written proof that shows any benefits or goods you received in exchange ” for instance the value of a meal you had at a fundraising dinner. Larger donations, such as land, art or stocks, may require additional documentation.
4. Home office deductions.
While not as big a red flag as in the past, because more people work at home, if your return is examined and you claim a home office deduction you should be able to document that your employer requires you to work from home. Self-employed people who use a portion of their home to run their businesses are generally able to deduct their office expenses. Freelancers or people who use their home office part of the time may be able to deduct a portion of their costs.
Because there are more opportunities for misstating income and deductions, self-employed individuals are more likely to be audited.