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IRS Audit Triggers
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Flashcards
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Large Business Expenses
Reporting large, unusual or questionable business expenses can capture the IRS's attention.
Foreign Bank Accounts
Failing to report foreign bank accounts or transactions may trigger an audit due to regulations surrounding foreign assets.
Cash Transactions
Businesses with large cash transactions can be audited more frequently due to the difficulty of tracing cash.
Earning Substantial Income
High earners are more likely to be audited because there is a greater opportunity for additional tax revenue.
High Home Office Deductions
Claiming a high amount for a home office deduction can be a red flag if the space is not used exclusively for business.
Crypto Currency Transactions
Failing to report cryptocurrency transactions can cause an audit due to the increased focus on virtual currencies.
Claiming Vehicle as 100% Business Use
Claiming a vehicle solely for business use when it is also used personally can trigger an audit.
Reported Income Discrepancy
Disparities between reported income and the information on W-2s and 1099s can trigger an audit.
Claiming Large Charitable Donations
Excessively large charitable contributions in relation to income can raise flags with the IRS.
Not Reporting Gambling Winnings
Gambling winnings are taxable and must be reported; failing to do so can trigger an audit.
Rental Losses
Reporting rental losses, especially when not viewed as a real estate professional, may trigger scrutiny.
Hobby Loss Rules
Claiming losses on activities not engaged in for profit, known as hobbies, can prompt an audit.
Claiming the Earned Income Tax Credit
Incorrectly claiming the Earned Income Tax Credit (EITC), which is highly scrutinized due to its complexity and fraud potential, may result in an audit.
Erroneous or Missing Forms
Making errors on tax forms or failing to file required forms can lead to an IRS audit.
Failing to Report a Foreign Trust
Omitting information about a foreign trust could result in an audit due to the strict reporting requirements for such accounts.
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