801 West Bay Drive Suite 707 Largo, FL 33770

(727) 210-7795
marc.delia@premierplanninginc.com
Download Brochure
Premier Planning Partners Home
Premier Planning Partners Home
  • Home
  • About Us 
    • Meet Our Team
    • Financial Planning Philosophy
    • Business Philosophy
    • Investment Philosophy
  • Services 
    • A Blueprint for Business Succession Planning
    • Comprehensive Financial Planning
    • Levels of Partnership
  • Our News 
    • Premier Insights
  • Resources 
    • Retirement
    • Estate
    • Investment
    • Insurance
    • Tax
    • Money
    • Lifestyle
    • Glossary
    • Tax Resources
  • Contact
  • Account Access 
    • Client Login
    • Wealth Management Platform
    • American Funds
    • Lincoln Financial Group
    • Midland National
    • Nationwide
    • Ohio National
    • Symmetry Partners
Download Brochure
Tax Read Time: 3 min

Red Flags for Tax Auditors

No one wants to see an Internal Revenue Service (IRS) auditor show up at their door.  The IRS can't audit every American’s tax return, so it relies on guidelines to select the ones most deserving of its attention.

Here are six flags that may make your tax return prime for an IRS audit.1

The Chance of an Audit Rises with Income

Only about 0.4% of all individual taxpayer returns were audited in 2019, which is the most recent data available.  However, the percent of audits rose to 1% for those with incomes between $200,000 and $1,00,000, and to 2.4% for those making over $1 million.2

Deviations from the Mean

The IRS has a scoring system it calls the Discriminant Information Function that is based on the deduction, credit, and exemption norms for taxpayers in each of the income brackets.  The IRS does not disclose its formula for identifying aberrations that trigger an audit, but it helps if your return is within the range of others of similar income.

When a Business is Really a Hobby

Taxpayers who repeatedly report business losses increase their audit risk.  In order for the IRS not to consider your business as a hobby, it needs to have earned a profit in three of the last five years.2

Non-Reporting of Income

The IRS receives income information from employers and financial institutions.  Individuals who overlook reported income are easily identified and may provoke greater scrutiny.

Discrepancies Between Exes

When divorced spouses prepare individual tax returns, the IRS compares the separate submissions to identify instances where alimony payments are reported on one return but alimony income goes unreported on the contra party's return.

Claiming Rental Losses

Passive loss rules prevent deductions of losses on rental real estate, except in the event when an individual is actively participating in the property's management (deduction is limited and phased out) or with real estate professionals who devote greater than 50 percent of their working hours and over 750 hours per year to this activity. This is a deduction to which the IRS pays keen attention.2

1.The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation
2. Kiplinger.com, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |

Have A Question About This Topic?

Thank you! Oops!

Related Content

Surprise! You’ve Got Money!

Surprise! You’ve Got Money!

Here’s a quick guide to checking to see if you have unclaimed money.

Inflation & Retirement

Inflation & Retirement

Estimate how much income may be needed at retirement to maintain your standard of living.

Medicare Advantage 101

Medicare Advantage 101

Overview of Medicare Advantage, what’s in them, special rules, and more.

Contact

Office: (727) 210-7795

Fax: (727) 245-6900

801 West Bay Drive

Suite 707

Largo, FL 33770

Send an Email

Quick Links

  • Retirement
  • Investment
  • Estate
  • Insurance
  • Tax
  • Money
  • Lifestyle
  • All Articles
  • All Videos
  • All Calculators
  • All Presentations

Check the background of your financial professional on FINRA's BrokerCheck.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

We take protecting your data and privacy very seriously. As of January 1, 2020 the California Consumer Privacy Act (CCPA) suggests the following link as an extra measure to safeguard your data: Do not sell my personal information.

Copyright 2023 FMG Suite.

Terms of Service | Privacy Policy

This website is for educational or informational purposes. It is not intended as investment, legal, retirement or tax advice.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.