The 2012 tax filing season is well over! The IRS released their 2012 Data Book and, as reported by AccoutingToday, they reviewed about 1% of all tax returns filed in fiscal year 2012, or about 337,477 returns. Of the returns examined, about 12.1% reported income over $1 million or more. Only 2.8% of returns were reviewed with income reported of at least $200,000 and under $1 million.
It appears a large income triggered audit red flags this year. As you prepare to stay organized for next year (yes! plan early and stay organized for next year) here are a few more things that might raise red audit flags as reported by Investment News:
- Failure to report all taxable income. IRS computers match your W-2s and 1099s to what you report on tax returns; if they vary, you may come under scrutiny.
- Unusually large charitable contributions. If your charitable deductions are disproportionate to your income, you may raise a red flag. Also, if you’re going to make charitable contributions, make sure to dot your I’s and cross your T’s so you don’t lose the deduction on a paperwork technicality! (link to previous blog)
- Improperly claiming deductions such as the home office deduction. Just because you have a room in your house with a desk and a computer doesn’t mean you qualify for the home office deduction. (link to previous post)
- Outrageous travel and entertainment expense write-offs. Be especially careful and make sure you have the appropriate documentation in case you’re audited.
- Running a cash business. Since people who run cash businesses (such as a car wash or nail salon) are notorious for under reporting, or even simply not reporting, income, as these businesses tend to come under more scrutiny.