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The Tax pros warn of top red flags for IRS audits

Tax professionals advise that there are several red flags that could increase the risk of an IRS audit. These red flags include inconsistencies in tax returns, a high income, and claiming large charitable deductions. With the pandemic, there are additional red flags to watch out for, such as working remotely in another state or receiving unemployment benefits. One of the biggest red flags is inconsistencies in tax returns. This could include errors in reporting income, failing to report all sources of income, or inaccuracies in deductions. Tax professionals advise that taxpayers should double-check their tax returns for accuracy before filing to avoid triggering an audit. Another red flag is a high income. Taxpayers with a high income are more likely to be audited, especially if their income exceeds $1 million. Tax professionals advise that taxpayers with high incomes should be extra careful when reporting their income and expenses, and they should keep accurate records to support their deductions.

Claiming large charitable deductions can also increase the risk of an audit. The IRS may question the legitimacy of charitable donations, especially if they exceed a certain percentage of the taxpayer';s income. Tax professionals advise that taxpayers should keep accurate records of their charitable donations, including receipts and documentation from the charitable organization. With the pandemic, there are additional red flags to watch out for. For example, if a taxpayer worked remotely in another state, they may be subject to additional taxes and reporting requirements.

Taxpayers should check the tax laws of the state where they worked to ensure compliance. Receiving unemployment benefits can also increase the risk of an audit. The IRS has stated that they will be scrutinizing tax returns for inaccuracies related to unemployment benefits, such as failing to report them as income or claiming incorrect amounts. Tax professionals advise that taxpayers should ensure that they accurately report their unemployment benefits and any other sources of income. In addition to these red flags, tax professionals advise that taxpayers should be cautious when claiming home office deductions, business travel expenses, and hobby losses.

These deductions can be a gray area and may be subject to scrutiny by the IRS. Another red flag is making unusually large charitable contributions. While it's certainly admirable to give to charity, if your donations represent a significant portion of your income, that could raise eyebrows at the IRS. Tax pros suggest keeping detailed records of all donations and maintaining a consistent level of charitable giving from year to year to avoid any suspicion.

In conclusion, taxpayers should be aware of the red flags that could increase the risk of an IRS audit. Inconsistencies in tax returns, a high income, and claiming large charitable deductions are some of the top red flags to watch out for. With the pandemic, there are additional red flags to consider, such as working remotely in another state or receiving unemployment benefits. Taxpayers should be proactive in their tax planning and preparation to avoid triggering an audit and seek the guidance of a tax professional if necessary.