You have likely heard about tax audits, and you may even know someone who has had their tax files audited by the IRS. What you may not know is why certain returns are selected for an audit, and how you can avoid the mistakes that raise red flags.
Some returns are selected based on an IRS statistical formula for random screening. Others are audited because they contain certain mistakes. The Pennsylvania Institute of Certified Public Accountants compiled this brief list of red flags that could trigger an audit if they apply to you.
1. Incorrect Social Security number. Make sure you clearly write or carefully type your Social Security number. Even one incorrect number can earn you a letter from the IRS.
2. Misreporting income. Double check that your income on your Form W-2 and Form 1099 match the reported income on your return. Call a CPA if you don’t understand a form.
3. Unusually high charitable deductions. Claiming a charitable donation that is well above average for your income range, or failing to file the proper form for a noncash donation, may trigger an audit. Keep all charitable donation evidence on file.