An IRS audit is something that nobody wants to face.  Digging up old receipts, if you are lucky or wise enough to still have them, searching out expense records, answering difficult and probing questions from the auditor are all unpleasant realities associated with an audit.  Therefore, it pays to be informed as to what to do, and what not to do to trigger those nasty red flags that can lead to an IRS audit.

Below is a list of areas to which the IRS gives extra scrutiny:

1.    New home credit
2.    Business car use
3.    Home office deductions
4.    A lot of itemized deductions for your income bracket
5.    Non-cash charitable contributions
6.    Investment income discrepancies
7.    Math error
8.    New car sales tax deduction

The IRS uses a sophisticated computer program called the Discriminant Inventory Function System (DIF) that scans tax returns and other documents for anything that qualifies for a closer look.  Recent changes to the tax code— including the first time homebuyer credit, the homeowner tax credit, and the new-car sales tax deduction — haven’t made it into the DIF formula yet, but they will be on the IRS’s compliance radar.  Anyone filing for the first-time-homebuyer credit will get their return examined by the IRS.

The best approach when filing for deductions is to stay legitimate.  Only a tiny proportion of returns trigger an audit, about 1 percent.  If your yearly income is greater than $200,000, the percentage goes up to about 3, which is still quite miniscule.  So go ahead and take any legitimate deductions that you may have, just be ready to document them.  Especially big ticket purchases and anything on the above list of IRS watch items.

An explanation of each of the above items will be featured in “Dodging IRS Audits Continued: 8 Things to Avoid“

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Disclaimer:  The information contained in this article is in no way intended for use as legal tax advice.  No assumption should be made that a tax attorney, enrolled agent or former IRS employee was involved in the creation of any content herein.  Advice on personal or business tax matters can be obtained by contacting Advanced Tax Help at (800) 970-8704, or by logging on to www.advancedtaxhelp.com