What triggers an audit for an individual?

Question

other then random, what are the main red flags that would trigger an automatic audit?

Answer 1

Use of someone's social security number more than once, claiming the Earned Income Credit when you have been denied the credit. excessive Federal Withholding reported, under reporting of income. Filing a -0- tax return. this list is endless.

Answer 2

Any number of things.

The worst, though the least likely, is the Taxpayer Compliance Audit. That's a random selection of returns that are examined line-by-line looking for errors, omissions, etc. You have to prove everything on your return.

Common triggers for the average taxpayer are claiming a home office deduction (unless for a daycare business), filing a Schedule C for 1099 income that shows a loss, or claiming itemized deductions that are out of line for your income level or your occupation.

Wealthy taxpayers are MUCH more likely to be audited. The higher your income is, the more tax the IRS is likely to extract from an audit.

There aren't any true "automatic" triggers, but if someone claimed deductions well beyond the means of their income the odds of an audit would increase astronomically.

Answer 3

The IRS computer system assigns red flags based on a complex system that the IRS devised that assigns "risk points" based on their historical experience on "hot areas" that are known to either have a lot of errors or a lot of instances of "cheating". These are the returns that the IRS selects for audit. They also do a number of "superaudits" that will select a return at random. These audits go well beyond examining one area or another of your return. These audits will examine your entire return as well as look at your non-return items, such as comparing your bank deposits to income items reported on your return. For example, if your W-2 records shows that you earned $10,000 per year, and you had no other source of income, and yet your bank accounts shows $200,000 in deposits over the course of the year, they will question that. The purpose of the superaudit is to refine the IRS's point system that they use to select returns for audit.

Answer 4

Excessive deductions relative to your income, especially with donations, business use of your home, etc... Excessive losses on a small private business year over year over year. That looks like you're trying to write off your hobby by calling it a business.

They also target higher income people, since there's more likelihood of a higher payout.

But there's probably no such thing as an "automatic" audit.

Answer 5

Besides the random ones that are chosen, they have a system that checks for irregularities among other people who have (and are) similar in nature to your income status. If something sticks out enough, then you may need to be audited. It's not terrible unless you hugely lied on your taxes or don't have the receipts/statements to back it up.

Answer 6

Not filing a W2 or 1099 or other income form will be a common trigger for them to audit you.

Answer 7

Asking this question maybe...haha.