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How to Avoid Raising the Audit Red Flag
Reports show that the IRS only audits about 1% of individual tax returns each year, but the idea of having to go through an audit is enough to send shivers down any taxpayer’s spine. Here are 11 simple steps to take this year when filing your taxes to avoid catching the eye of the IRS.

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Here are some tips from H&R Block to help minimize the chances of facing an audit this tax season.

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Failing to Claim All Taxable Income

The IRS gets copies of all your 1099s and W-2s so they will notice any inconsistencies between what you earned and what you filed on your return.

(Reuters)

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Claiming the Homebuyer Credit Without Proper Documentation

The IRS screens all these claims so make sure you have all the paperwork available to support the claim.

(Reuters)

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Claiming Unusually-Large Charitable Contributions

The IRS has a scale of the average charitable donations for different income levels, according to H&R Block, and claims that are much higher than determined averages could trigger a red flag.

(Reuters)

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Failing to Report a Foreign Bank Account

The IRS has been more successful lately in documenting foreign bank’s U.S. account holders making it more difficult to try and hide them and avoid the taxes owed on those assets.

(Reuters)

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Engaging in Large Cash Transactions

Often those trying to hide unreported income often work with cash in an effort to avoid scrutiny so if you make any large cash transactions it may draw the attention of the IRS.

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Not Double-Checking the Math

Errors calculating the math are often the most frequent reasons people are contacted by the IRS.

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How You Claim Business Use of Your Car

Claiming 100% business use of your car is rare so will likely raise a red flag with the IRS.  With a claim you need to provide mileage logs along with an accounting of the reason for each trip claimed.

(Copyright 2006 Maurice van der Velden)

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Claiming a Home Office Deduction

If you have a home office, it must be in a space that is used exclusively for business to qualify for the deduction.

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Extensive Business Travel and Entertainment Claims

Claims that seem out of proportion with the type of business you do will raise a red flag since the IRS is aware there is a tendency for people who are self-employed to overstate these claims.

(Reuters)

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Claiming a Loss for a Hobby

If you have a wage income and claim a loss for a business that sounds like a hobby such as horse breeding or car racing, the IRS may get suspicious.

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Operating in a Cash-Based Business

Accurate documentation is important for cash-heavy businesses such as bars and taxis because the IRS often gives these returns extra attention, H&R Block says.

(Reuters)

How to Avoid Raising the Audit Red Flag

Reports show that the IRS only audits about 1% of individual tax returns each year, but the idea of having to go through an audit is enough to send shivers down any taxpayer’s spine. Here are 11 simple steps to take this year when filing your taxes to avoid catching the eye of the IRS.

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