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Top Ten IRS Audit Red Flags

(1) Mo’ Money Mo’ Problems: The overall individual audit rate is 1.1%. For individuals making less than $200K, the audit rate is 1.0%.  For individuals making $200K+ the audit rate is 3.9%. Make more than a $1mil? Your audit rate is 12.5%.
(2) What’s 1099? The price of a t-shirt? If a company sends you a 1099 MISC, that means they have reported income for you to the IRS. Companies have to send a 1099 to people they make payments to for work performed.  Make sure you report all 1099’s that you receive.
(3) Charity begins at home. The IRS knows when someone is taking an abnormally large charity deduction compared to their income. When you want to help others, start with helping yourself. Make sure you are not reporting $10k in charity deductions if your income is only $15k. Unless you really are donating that much. In that case you don’t need to worry about the IRS. God is on your side.

 (4) Deduct my rent? Hell Yeah! Everyone wishes they can deduct part of their largest expense, housing, on their taxes. Unfortunately, the rules are so stringent, that most people do not qualify for the home office deduction. Don’t fall into Uncle Sam’s golden honey trap. Unless you know you qualify, leave this beehive alone.

(5)“I’m the CEO, bitch.” You’re self-employed. You’re the boss. You’re a big shot. You’re also a huge target for the IRS. Agents know that self-employed people traditionally under-claim income and over-claim expenses. It’s always important to be honest, but especially so when the IRS has a target on your self-employed bad self.
(6) 100% business use of vehicle.If you use your vehicle for business purposes, either a business you own or as an employee, do not try to put on that you never use the vehicle for non-business reasons if you declare you do not have any other vehicles. Even the undertaker takes the hearse to pick up milk every once in a while.
(7) You don't believe in tipping? If you are a waitress, taxi driver, hair stylist, and you DO NOT report tip income, you might as well update your facebook status as AUDITED. The IRS knows who gets tips as a regular part of their income and if you do not report tip income, the IRS will be leaving you a nice tip in the form of an audit notice.
(8) The Bell Curve, it’s not just to grade college courses. The IRS uses a bell curve to grade your income tax return too. If your return, for your income range, has too many personal deductions, then your return will fall into the standard deviations from the bell curve mean distribution. Returns in the “tails” is where the IRS looks for people to audit. 
(9) Globetrotter. Have a bank account, as well as a girlfriend, in every city you’ve traveled to? You better let the IRS know about all your foreign bank accounts. The US Department of Treasury has used terrorism concerns in recent years to pressure foreign countries in revealing the names of foreign bank account holders. You don’t want to end up on any list that Bin Laden has been on.
(10) Bernie Madoff? Never Heard of him. You trade stocks. Along with your stock analyst reports, your technical charts, and your crystal ball, make sure you also have a good bookkeeper. Record every detail of every stock transaction. The new Dodd-Frank legislation places many new rules on reporting financial trading activities.
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