Understanding the IRS Audit Process:
The first step is understanding how the IRS conducts audits. They utilize Audit Technique Guides (ATGs), which serve as a roadmap for examiners. By familiarizing yourself with these guides (available publicly online), you can gain valuable insight into potential red flags the IRS might identify in your tax return.
Common Audit Triggers:
ATGs highlight specific areas that raise eyebrows for the IRS. Here are some key risk factors to be aware of:
Non-filers: Ignoring your tax obligations will inevitably lead to problems.
Data Mismatches: Discrepancies between your return and the IRS records can trigger an audit.
Schedule Cs with Large Losses: Legitimate businesses can incur losses, but excessively high losses compared to industry standards may warrant scrutiny.
Multiple Schedule Cs: Running multiple businesses increases complexity and potential for errors.
100% Business Use for Vehicles: Claiming full business use for a personal vehicle requires robust documentation.
Rounded Numbers/Estimates: Estimated figures without proper records can raise suspicion.
Real Estate Professional Status with W-2 Employment: This complex status comes with strict eligibility requirements.
High Deductions Relative to Income: Be prepared to substantiate significant deductions with proper documentation.
Specific Credits: Recent credits like the Employee Retention Credit (ERC) and Energy Credits have specific eligibility criteria, ensure you meet them before claiming them.
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