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30 Ways Your Tax Return Could Trigger an IRS Audit

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For most taxpayers, it's unlikely that they will be audited by the IRS. But that doesn't mean it's completely out of the question. While the number of audits dropped to its lowest point in 14 years last year, the IRS knows that every $1 spent on audits brings in $4 to the Treasury Department. We spoke to several tax experts and found out just what the IRS is looking for when it's considering an audit and how you can trigger an audit through mistakes, oversights, and not-so-brilliant deductions.

DEVIATE FROM THE NORM

The IRS freely admits that it needs only a single anomaly to audit a return. Sometimes, audits are based solely on a statistical formula that your return had the misfortune of deviating from. The IRS develops those "norms" from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. Basically, even some minor, unexplained glitch in your return can trigger an audit.

WAIT FOREVER TO FILE

Nothing is more helpful to tax filing than great, timely records. However, it's difficult to put those records together at the last minute if you haven't been compiling them all year. Your taxes should be reviewed on a regular -- not annual -- basis, especially if you're a business owner. "If you wait until April 10 to figure out your entire year, you're either going to make big mistakes or you're going to overestimate things, leave things out and get audited," says Chantel Bonneau, chief wealth adviser for Northwestern Mutual.

DON'T FILE A RETURN

The IRS is certainly going to want a word with you if you don't file a return -- the bare minimum you have to do at tax season. If you owe the IRS and don't pay, you'll be slapped with both late payment and late filing penalties that add up quickly. Even if you owe nothing or have no income, file anyway, says Mark J. Kohler, senior adviser at online tax firm TaxSlayer.

"The IRS is like a boyfriend or girlfriend, if you don't stay in touch, they will assume the worst," Kohler says. "They'll also say bad things about you to their friends."

MAKE A LOT OF MONEY

"Correlation or causation is another debate, but the more money you make, the higher the risk of being audited," Northwestern Mutual's Bonneau says. "If you're making $10 million a year, there's a higher likelihood that you're going to be audited than someone who claims $35,000."

Granted, those wealthier folks tend to be business owners making more deductions that are worth more money, but the IRS knows where the big money is. Back in 2016, the chance of the IRS auditing a person or married couple making less than $500,000 was less than 1 percent. For those making more than $10 million, it was 19 percent.

MAKE A LOT LESS MONEY

If your earnings suddenly plummet by about half, that could be a trigger for the IRS, as well. Remember, the IRS looks at your entire tax history, so even a reduction in income from year to year could make them suspicious. Considering that a drop from $91,900 a year to $37,950 a year would move you from the 28 percent bracket to the 15 percent bracket, the IRS is going to want to know why they're getting less from you.

FILE A SLOPPY RETURN

According to the IRS, folks who do their taxes on paper are 20 times more likely to make a mistake than those who e-file or get help. Some are small, amendable mistakes like misspelling a name or forgetting a Social Security number. Others, like terrible math, might get the IRS to give you some unwanted attention. Get it right the first time, even if it means paying someone to do it for you.

DON'T KEEP RECEIPTS

TaxSlayer's Kohler notes that the easiest way to produce an accurate tax return that keeps the IRS happy is to keep the best accounting records you can. The more detail you can provide, the less the IRS has to ask for.

"Receipts have nothing to do with keeping you out of an audit, but they can certainly reduce the severity of an audit and even reduce the extent and time it may take," Kohler says.

DEDUCT IMPROVEMENTS TO RENTAL PROPERTY

The IRS has no problem with you deducting mortgage interest, property tax, operating expenses, depreciation, and repairs made to a rental property. But if you're sprucing the place up or upgrading appliances and you deduct those expenses, you're double-dipping. The IRS considers those improvements part of depreciation, which means you can only deduct a portion of their expenses.

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