After The Reaper, second in the line of “those to fear” is the IRS tax auditor. What with his scales and poison fangs and all. But you can dodge his fell gaze if you know the red flags he’s looking for.
Basically the trickier your return and the income you have from sources that are non-withholding and non-reporting, the more likely are to trigger an audit.
Don’t puff up deductions, especially on charity donations, travel, entertainment, meals and car expenses, as these will set off the klaxons.
Claiming too much in deductions can hurt, but also too will not taking the common deductions.
Also earning over $200,000, filing a loss on a Schedule C, rounding your numbers, and hiring family members can set him off. Donating a lot relative to your income or making a large transfer from your business account to your personal account. Oh, and getting paid in all cash. Yep, they like to scrutinize that.
If you do happen to get hit with an audit, here’s how you can deal with it.
Are you afraid of a tax audit? [Prism Money]