It is almost impossible to be completely proof of an IRS audit.
However, people with simple and straightforward tax returns, withheld employment income, standard deductions, and no special credits will be least likely to be audited by the IRS.
This is because the IRS will generally place emphasis on taxpayers with various income, credits, and tax deductions that are known to be prone to fraud or erroneous claims (which are considered red flags).
Therefore, the way you file your tax return can increase the chances of being selected for an IRS audit.
Here is a list of some of the known IRS red flags for audits: Professions That Deal a Lot with Cash One of the red flag areas is professions that deal a lot with cash transactions.
Most of these transactions make tax evasion or fraud easier since auditing or keeping track of the trail (or record) of money in cash is quite difficult most of the time.
These professions include house gardeners, taxi drivers, bartenders, painters, casinos, hair dressers, and other similar vocations.
These jobs will usually have a lot of unreported or underreported incomes.
The IRS will therefore, ardently scrutinize the returns of such taxpayers, whose chances of facing an IRS audit are higher.
Erroneous Entries and Additions Another area that can easily lead to an IRS audit is erroneous entries and addition errors.
If you add or exclude a zero at the end of a given figure, it makes all the difference when it comes to taxes due.
Therefore, the IRS quickly isolates such returns and takes investigative actions.
If they are simple addition errors with no tax consequences, the IRS will make corrections with no follow-up audit.
On the other hand, if the error leads to erroneous tax payments, then an IRS audit is almost inevitable.
Therefore, double check the figures you claim and check your math before submitting your returns.
Contractors and Consultants Contractors and consultants including lawyers, dentists, IT consultants, motivational speakers, accountants, and such-like professions, also fall in the "red flag" category of income earners.
The deductions and credits for these professionals are usually slightly complicated, and thus, they are prone to a lot of IRS reviews and examinations.
Furthermore, there are generally a sizable amount of incomes made by these professions that goes unreported.
Therefore, the IRS scrutinizes the returns of these taxpayers.
If you fall in this category, ensure that you keep good record of incomes made, business expenses, and any other deductions that you seek to claim.
Large Cash Transactions Another red flag for the IRS is a tax return with large cash transactions.
Transactions that exceed $10,000.
00 will normally be flagged as suspicious transactions.
These transactions include gambling earnings or losses, funds transfers, foreign currency exchanges, or even charitable donations.
Therefore, if your tax return has some high-value transactions, ensure that you have proper support documentation, in case of an IRS audit.
Offshore Incomes Offshore incomes are one of the areas that have been identified as a major source of unpaid taxes and has therefore, will be marked for extra scrutinizing by the IRS.
Hence, if you have foreign income, ensure that your documentation is accurate.
Also, ensure that you file the FBAR Form by the due date to avoid any penalties and audits.
If it is your first time reporting foreign income, be sure that the IRS is notified of when your offshore accounts were opened and the nature of the business.
Furthermore, it is always encouraged (and required) to have all the documentation ready for review.
Losses under Schedule C Business losses, losses due to hobbies, and any other losses you wish to include under Section C of your tax returns is another red flag item.
If it is a hobby or new business, the IRS will need to see an "intent for profit" to allow a loss deduction.