“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.” – Jay Leno
Jay Leno’s definition of red flags differs from most tax professionals. The professionals at Kiplinger have a video that explains three red flags from their complete list. Find the complete list on their website.
Red flag items indicate these are areas the IRS watches for deductions they can potentially disallow. It is important to understand the rules for eligibility for these deductions to ensure you qualify to take the deduction. Equally important, you must retain your receipts for these deductions. Even if you are eligible to take the deduction, without receipts, you may be disallowed the deduction during an audit.
If your tax return includes red flag items, I advise you to consult with a tax professional. Understanding tax law, your rights as a taxpayer and how best to apply these to your personal tax situation, requires a seasoned professional who stays current on developments with the ever-changing laws. Fear of audit should not dissuade you from taking a legitimate tax deduction, but being prepared will help ensure you are allowed the deductions during an audit. Contact a tax professional to discuss your personal tax situation to maximize your deductions and minimize your tax liability.
- What’s the Difference Between an Audit, Correspondence Audit, and an Adjustment Letter? (turbotax.intuit.com)
- Tax Audit Red Flags: 11 Things That May Get the IRS to Pick You (dailyfinance.com)
- TurboTax – Handling Notices from the IRS (turbotax.intuit.com)
- TurboTax – Top Five Ways to Avoid a Tax Audit (turbotax.intuit.com)