The Real "Red Alerts" When It Comes To Getting Audited

For the most part, even a certified public accountant can't tell you when you're going to get audited. The Internal Revenue Service has an extraordinary wealth of data that is intended to alert them to potential red flags. But many of the things that people suspect could lead to an audit are actually completely harmless or a nonissue. There are only a few real red alerts when it comes to being audited.

Having Foreign Accounts

Though there is nothing wrong with having overseas accounts, it does add an additional layer of scrutiny -- if only because it alters the complexity of the tax return. There are so many additional rules and regulations regarding foreign accounts that those who have them are more likely to have filed their tax return incorrectly.

Taking Too Many Deductions

Business deductions are understandable -- but when they become excessive, there can be a problem. There's simply a distinction regarding when they become excessive. The IRS is aware that many businesses lose money, especially in their first few years. That means it isn't unusual for expenses to actually outweigh income. Instead, the IRS looks for a business having more deductions than is usual for their industry. 

Earning More than $200,000

High income earners are generally far more likely to get audited. That means that the likelihood of being audited if you are a taxpayer that makes less than this is extraordinarily minimal; in fact, it's very rare for anyone who makes under $100,000 as an individual to get audited. Likewise, business owners that have a fairly low profit are not likely to be audited.

Being Audited Previously

If you're already being audited, you should be aware that having an audit ongoing could mean that your other tax return years will come under review. The IRS reserves the right to audit multiple years, as it's very likely that an individual who has made a mistake on one return will have made the same mistake on other returns as well.

In general, the IRS simply looks for anything that is unusual or out of the ordinary for a certain industry. If a company or individual appears to be non-typical, they then take a closer look. If particularly egregious errors are found, then a taxpayer may be in trouble. For the most part, however, an audit really only leads to a recalculation of what is due and a potential assessment regarding interest. For more information, talk to a certified public accountant like Carmines Robbins & Company PLC in your area.