When it comes to filing taxes, accuracy is everything. While most people aim to be as honest as possible, certain mistakes or oversights can raise serious red flags for the IRS. These red flags can lead to unwanted attention, additional scrutiny, or even an audit. Here are five huge IRS red flags you should avoid on your tax return.
1. Unreported Income
One of the most common reasons for IRS scrutiny is unreported income. The IRS receives copies of all your income statements, like W-2s and 1099s, and cross-checks them with your return. If there’s a discrepancy or unreported earnings, it’s almost certain to raise a red flag.
- Example: If you worked a side gig or freelance job and failed to report the income, the IRS will likely catch it and may send you a notice of underreporting.
2. Excessive Charitable Deductions
Donating to charity is great, but overdoing your charitable deductions can make the IRS suspicious. If your charitable contributions seem disproportionately high compared to your income, the IRS might take a closer look.
- Tip: Always keep receipts and proper documentation for your charitable donations, especially if they are significant.
3. Home Office Deduction Overreach
Claiming the home office deduction is perfectly legitimate—if you meet all the criteria. However, incorrectly claiming that a large portion of your home is dedicated exclusively to business can attract IRS attention. They might question the legitimacy of your claim and require detailed documentation.
- Pro Tip: Make sure the space you’re claiming as a home office is used exclusively for work purposes and meets IRS guidelines.
4. Large Business Expenses for Small Businesses
If you’re a small business owner, you’re entitled to deduct business-related expenses. But, if your expenses seem excessive or out of proportion to your income, the IRS might view this as an attempt to reduce taxable income unfairly.
- Example: Claiming a luxury car or extensive travel as business expenses when your revenue doesn’t support those types of purchases can raise suspicions.
5. Filing Returns with Mathematical Errors
Simple math errors can trigger unnecessary IRS attention. While small mistakes might only result in minor adjustments, larger discrepancies can cause the IRS to scrutinize your entire return.
- Tip: Double-check your figures or use tax preparation software to minimize errors and avoid unwanted complications.
Filing your taxes accurately and truthfully is essential to avoid triggering any IRS red flags. Be cautious with your deductions, report all your income, and double-check your work. If you’re unsure, working with a tax professional can help ensure your return is free from potential red flags. Remember, it’s always better to err on the side of caution when dealing with the IRS!
