audited by the IRS is like being notified by your dentist that you need
a root canal. And just like eating sweets, failing to brush, or
forgetting to floss, there are a few things you can do that will likely
trigger that dreaded notice by the IRS. Forbes recently published a list of fifteen ways to invite an audit.
- Be uber-wealthy. Not a problem for most people, but the IRS tries to get the most bang
for the buck. Investigating the very wealthy increases their ROI.
- Hide an off-shore account. Sending your money on vacation to the Cayman Islands isn’t a crime,
but not declaring it is. If your money isn’t part of the “keep it local
movement,” you may potentially be at higher risk for an audit.
- Fail to report all income. Think that 1099 from a side-job you did earlier this year is going to
fly under the radar? The IRS has invested in powerful software tools
capable of connecting the dots of your financial life. Make sure you
declare everything you made.
- Have a pet business. If your business has lost money for 3 out of the last 5 years, the
IRS may not be as excited as you are about claiming that loss on your
taxes. If your duck decoy business still isn’t gaining market traction
it may be time to recategorize it as a hobby and stop claiming it on
- Use an unethical tax preparer. The IRS actively hunts down tax preparers whose ethics leave
something to be desired. Make sure yours isn’t one of them. Just because
someone uses slick advertising doesn’t mean he or she will do the best
job for your business.
- Make math errors. The IRS is in the business of numbers, and they’re not the government
agency to send sloppy work to. Make your math calculations spot on. If
yours don’t add up because of calculation errors, the IRS will request corrections and possibly dig deeper.
- Claim losses on a hobby.
Claiming mileage for taking your hot rod to the drag strip isn’t
something the IRS wants to see show up on your expenses. If it’s
something you do because you enjoy it rather than expect it to net you a
profit, leave it off your filing.
- Write off big unreimbursed expenses you incur as an employee. If you claim big in this category the IRS is likely to think
you’re claiming things that don’t count as deductions to reach such a
- Protest your tax burden. If you spend too much time proclaiming to the world why the IRS and
the American system of taxation isn’t constitutional, watch
out. The IRS is likely to believe that you’ve spent more time protesting
than properly preparing those “illegal” taxes.
- Use round numbers when claiming deductions. The IRS assumes people don’t spend money in nice, even amounts all
the time. If you round your tax deduction amounts, the IRS may assume
you’re playing loose with your numbers and lack the paperwork to back up
those nice round numbers you’re claiming.
- Claim a monster-sized charitable contribution. Writing big checks and then claiming those on your taxes exposes you
to potential IRS scrutiny. You may be a genuinely giving person, but the
IRS may view this as grounds for taking a closer look.
- Talk big. If you spend time at the local bar telling your drinking buddies
about your newly hatched plans to avoid paying your fair share, someone
else may be listening. The IRS pays rewards for tips that result in
large collections of unpaid taxes. This isn’t 1984, but your friends may
not be the only ones listening to your ill-advised schemes.
- Make an ex upset. Whether it is an ex business partner, employee, or spouse, dirty
laundry they know about can end up on an IRS tip line. It may be for the
tipster’s reward or just for the satisfaction of knowing they’re doing
their part in ruining your life.
- Be sloppy. Mistakes invite scrutiny. Make sure your details are correct when you
file. One misplaced digit in a Social Security number means you’re now
someone else. The IRS takes notice of careless errors.
- Be late or worse. The IRS doesn’t wait to wait to hear from you until May 15th.
They’re even less excited when they don’t hear from you at all. The IRS
has a program that will auto-generate a tax return if you don’t send
them one. They use information from W-2’s and 1099 forms sent to them by
the people you’ve done work for that year. The only thing it won’t have
on it is all your deductions you could have claimed. Being late to the
party without communicating with the IRS means you’ll be paying big-time for your absence.