If there is one thing that strikes fear in the hearts of most Illinois residents, it is receiving notification that you are being audited for your federal income tax returns. Most audits arise from certain red flags, although theoretically, anyone can be the subject of a tax audit.
Read on to learn what might draw unwanted attention and cause your return to be audited.
You make a lot of money
It might seem unfair to all you high-earners out there, but audit rates rise with filers’ incomes. About 8% of the audits that are performed are for filers with incomes of $10,000,000 and more.
You claim a home office deduction
Your home office must be separate and used exclusively for your business. So if you operate out of the guest room with a desk and a PC set up in a corner but your cousin from Toledo or in-laws use the room when they are in town, this could be a problem.
You’re involved in cryptocurrencies
Cryptocurrency trading is still a bit of the Wild West of income generation. If you have invested in Bitcoin or a similar cryptocurrency, auditors may decide to give your return more than a cursory glance. Make sure that you report all income from your crypto trading efforts.
You make a lot of charitable donations
While there is nothing wrong with generosity, if your giving is out of scale with your income, this can trigger a closer look. Always keep receipts for charitable donations and when possible, make sure you donate by check or debit card so you have proof of your largesse.
Get help before you trigger an audit
If there are any questionable deductions or expenses on your tax return, seek professional guidance from a tax adviser before filing your return. If you do wind up being audited, it is never prudent to meet with the IRS auditors without a tax attorney by your side to offer guidance.