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While the odds of an audit have been low, the IRS may flag your return for several reasons, tax experts say. Some of the common audit red flags are excessive deductions or credits, unreported income, rounded numbers and more. However, the best protection is thorough records, including receipts and documentation.
A correspondence audit is a simple review of tax returns conducted by the IRS. This kind of audit is normally aimed at charities and other nonprofits. The IRS agent responsible initiates contact by mail or phone requesting clarification on issues or problems with an organization's tax return(s).
Large changes of income Probably one of the main IRS audit triggers is a large change of income.
Some common audit red flags include claiming excessive charitable donations, failing to report all income, and taking large deductions for business expenses. Other red flags include not reporting all tips, not accurately reporting self-employment income, and claiming the home office deduction.
Some red flags for an audit are round numbers, missing income, excessive deductions or credits, unreported income and refundable tax credits. The best defense is proper documentation and receipts, tax experts say.
When conducting your audit, we will ask you to present certain documents that support the income, credits or deductions you claimed on your return. You would have used all of these documents to prepare your return. Therefore, the request should not require you to create something new.
The IRS receives copies of your W-2s and 1099s, and their systems automatically compare this data to the amounts you report on your tax return. A discrepancy, such as a 1099 that isn't reported on your return, could trigger further review. So, if you receive a 1099 that isn't yours, or isn't correct, don't ignore it.
The Internal Revenue Service auditor may offer to verify your taxes with other information. Revenue enrolled agents accept canceled checks, written records, bank account, debit and credit card statements, or other documentation as proofs for verification.