Audit Red Flags

Tax return audits are one of the biggest concerns of many taxpayers. The best way to help audit-proof your return is to make sure everything in it is accurate and in the right place. There are different levels of IRS audits, and the most common is caused by tax return errors such as reporting income on the wrong line or form. Taxpayers should also be prepared to provide the IRS with documentation to support their claims should the IRS audit their return.

The IRS might flag your return for review as a result of computerized IRS screening, random sampling or an income document-matching program that compares the information in the tax return to information from the taxpayer’s bank, employer, W-2 and other tax documents. While the issues flagged by the document program are obvious triggers, there are other, more complex ways of choosing returns for audit.

Taxpayers should be aware of the following red flags:

  • Claiming unusually large amounts of deductions when compared with the deductions claimed on other tax returns with similar income, such as high charitable contributions or large expenses on rental property
  • A large number of dependent exemptions claimed by a head of household with low income
  • Unusually high deductions for casualty losses, home office expenses, and travel and entertainment expenses
  • Significant nontaxable investment income, foreign-source income or business losses
  • Self-employment income and no expenses, specifically when claiming the earned income tax credit

What to do if you get “the letter”
Many audits can be handled quickly and easily when the taxpayer provides some additional information. The most important thing to do after receiving an audit notice from the IRS is to acknowledge it and respond promptly. Even if you did the tax return yourself, you may want to contact a tax professional before sending information or additional money to the IRS. The IRS does not necessarily have all the information they need, so you may not owe at all. A preparer can help determine what to do and locate the information you need to respond.

Additional information on audits and guidance on what to do when being audited is available in the
IRS Audits section of JacksonHewitt.com.

Jackson Hewitt tax preparers in offices across the country are available to assist taxpayers with audit questions or concerns, even if Jackson Hewitt did not prepare the return in question.