With tax season for individuals closed on April 17 (unless you filed an extension), the next concern about your tax return revolves around whether it will be audited. What does the Internal Revenue Service (“IRS”) look for in determining whether or not to audit a tax return? Here are a few things that if they are “off” might trigger an audit:


1. Failing to report all of your income. The IRS receives every tax document you receive that reflects income you received so it is not difficult for the IRS to determine whether you are underreporting your income.


2. First time homebuyer credit. If you took advantage of this government program, be prepared to have documentation supporting this deduction because previous IRS audits have found rampant fraud by individuals claiming this credit.


3. Claiming large charitable deductions. This is a long-time favorite of the IRS, so be sure you have documentation supporting your charitable deductions.


4. Home office deductions. Another IRS favorite because most people fail to meet the requirements for taking the deduction. The key here is that the home office must be a space within the home that is specifically and solely devoted to business use.


5. Schedule C deductions. The IRS looks closely at meals, travel and entertainment deductions. As with the charitable deduction, the key here is to make sure you have documentation supporting your deductions.


6. Claiming 100% business use of a vehicle. To support this deduction, you must keep detailed date and mileage logs which reflect the vehicle was not used for personal use.


7. Claiming a loss for a “hobby.” The IRS looks closely at Schedule C’s which reflect large losses on a business that looks like a “hobby.” If you are maintaining a “hobby” business, it must be operated with a reasonable expectation of making a profit, or, in other words, it must look like a real business.


8. Cash based businesses. If you run a cash based business, i.e., bar, beauty parlor, etc., then you are at a greater risk of having an audit conducted. Here, you must make sure that your records are detailed and accurate.


9. Taking higher than average deductions. If you are deducting amounts which are disproportionate to your income, you are at a greater risk of having your tax return audited. As with most deductions, if you have supporting documentation to support your deductions, you have a better chance of having your deductions upheld if you are audited.


If you are notified that the IRS will be auditing your return, the attorneys at Lavelle Law, Ltd. may be able to help you. Please contact us if you have been contacted by the IRS.