Ways to get audited

For small and big business to individuals and couples, take a look at 14 ways to get audited by the IRS assembled over at kiplinger.com. It’s a good list with a wide range of examples–some obvious, some not so obvious. In the end, it sort of re-affirms the general idea that the IRS is scary.

Regarding their list, kiplinger provides some good examples and some not so good ones. For example, maybe something like getting audited for not reporting your overseas bank account (something the IRS audit branch is pretty concerned with) is not a personal concern for you. Maybe a Swiss account or an account in the Caymans you’re not paying taxes on sounds a bit, dunno, foreign?

That said, those big time audits are quite lucrative for the IRS, and the average tax payer’s removal from them does little to change that. What’s interesting, of course, is just how rampant this kind of tax evasion has become. Accordingly, the IRS has turned to offering voluntary compliance programs with lessened penalties for offenders who choose to come clean about their overseas holdings which usually means no jail time. There was wide-spread speculation during the 2012 presidential election that Mitt Romney took advantage of these clauses.

In any case, take a look at these 5 red-flags (taken from these 5 red flags over at theconsumerist.com) we’ve put together for you that may actually concern you.

1.) You make too much. According to the “kiplinger 14” the average tax payer has about a 1/100 chance of being audited. People reporting incomes over $200,000 have a 1/27 chance or a 4% audit chance. That’s pretty low. However, if you’re fortunate enough to report an income of a $1,000,000 or more, well then your chances rise to 1/8, which means a 9% rise in your chance of being audited.

2.) Your deductions for charity donations are too large. Kiplinger suggests keeping thorough records to avoid an audit on these deductions. After all, the IRS has pretty accurate records of what the average tax payer is giving to deductions and if yours are way off the charts you’re only helping yourself attract attention from IRS algorithms.

3.) Business Deductions. Ye who are self-employed, watch now where ye tread. A past article on our blog elucidated some key considerations regarding travel deductions for the self-employed.  To avoid an audit here it is advisable to keep very detailed records of every expense you are deducting. Otherwise, as kiplinger points out, “your deduction is toast.”

4.) What’s the deal with your home office deduction? Well, as far as the IRS is concerned it “has found great success knocking down the deduction and driving up the amount of tax collected for the government.” So it’s a huge consideration for the IRS, and it’s something we’ve touched on in our blog in the past. You can read the article here. What you need to keep in mind is that despite the IRS’s hyper-attention to these kinds of deductions, you can certainly still use them.–Just be sure that you’re using this deduction the right way.

5.) You own a small business. We’re a small business CPA firm looking out for other small businesses. We have to mention this one. “Experience shows that those who receive primarily cash are less likely to accurately report all of their taxable income,” says kiplinger. As a result, the IRS is relegating an increased focus on getting what is due from small businesses.

Now that you’ve heard from us about auditing, leave a comment or socialize with us through the media, and let us know what you’re thinking. You can also give us a call at (425) 483-6600 and we’ll totally make sure you don’t get audited.

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Seattle CPAAbout Seattle CPA
Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

Huddleston Tax CPAs of Seattle & Bellevue
Certified Public Accountants Focused on Small Business

(800) 376-1785
40 Lake Bellevue Suite 100, Bellevue, WA 98005

Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching, Quickbooks consulting, bookkeeping, payroll and business valuation services for small business. We serve Seattle, Bellevue, Redmond, Tacoma, Everett, Kent, Kirkland, Bothell, Lynnwood, Mill Creek, Shoreline, Kenmore, Lake Forest Park, Mountlake Terrace, Renton, Tukwila, Federal Way, Burien, Seatac, Mercer Island, West Seattle, Auburn, Snohomish and Mukilteo. We have a few meeting locations. Call to meet John Huddleston, J.D., LL.M., CPA, Tawni Berg, CPA, Jennifer Zhou, CPA, Jessica Chisholm, CPA or Chuck McClure, CPA. Member WSCPA.