Red Flags for Audits

The IRS audited less than 1 percent of returns last year, and that number may be even lower this year, according to the personal-finance website Kiplinger. If you want to stay out of that small number of auditees, here are red flags tax experts say you should avoid:

• One of the most common reasons for an audit is when the taxpayer is taking higher-than-average deductions in relation to his income. This can come from various types of deductions: Charitable contributions, real estate interest or student loans interest.
• There are some scenarios where an individual is allowed to take withdrawals from a retirement account prior to 59 ½ years old. But the IRS charges a 10 percent penalty (on top of the tax paid on the withdrawal) when none of those exceptions are met. Almost 40 percent of taxpayers did not report the withdrawal when they did not qualify for the exceptions, according to Kiplinger.
• A sudden avalanche of business expenses: In previous years, employers were allowed to deduct more than 2 percent of their adjusted gross income for unreimbursed employee expenses, but will no longer be allowed to do so in 2018. So if you suddenly have a thick wad of restaurant and Uber receipts for business trips all over the city at night, the IRS will notice.