Red Flags That Attract IRS Audits

While the world prepares itself for another calendar change, the Internal Revenue Service is preparing for a new tax-filing season. With the final few pages of 2016 being turned, it makes sense for all of us to take a glance ahead at what the IRS might have in store.

For many, a tax refund will be in order. The average refund check last year was for $2,700. For others, an audit is in store. The tax agency audits only about 1 percent of Americans, but much of the remaining 99 percent lives in fear of being audited. So let's take a look at the red flags that can prompt an audit.

A recent newspaper list of the red flags puts the filing of a paper return at the very top. "Possibly the easiest way to draw an audit," the article states. Paper returns can mean a greater risk of math mistakes. Plus, paper returns require people to use their handwriting; and that can mean scribbling that even a trained IRS agent can't decipher.

TurboTax says paper returns have an error rate of 21 percent, while e-returns have a rate of just 0.5 percent.

Other red flags include:

• A home-office deduction: one of the most used and abused deductions. Too often, people claim a room is a home office, only to realize later that it also functions as a man-cave, guest room, or for other purposes.
• Earned Income Tax Credit: the IRS says up to a fourth of all EITC payments are improper. So the possibility of fraud makes the agency scrutinize returns claiming EITC more than returns from middle-class persons or families.
• Making more than $200,000: the audit rate jumps in higher tax brackets. The tax agency has more to gain from an audit at the upper end of the spectrum than it does from audits elsewhere.

As painful as an audit can be, remember that you do not have to accept the findings. With the help of an experienced tax attorney, like those at the Robert J. Fedor Esq. LLC law offices in Cleveland or Chicago, you can appeal an audit.