This time of year, our Grimbleby Coleman team often receives emails and phone calls from clients inquiring about ways to avoid the most dreaded tax experience: an IRS audit. Nathan Miller, Partner and CPA, says Grimbleby Coleman CPAs assist clients by weighing the odds and evaluating risk to stay out of the IRS spotlight.
"There's no sure way to avoid an IRS audit, but there are red flags out there that can increase your chance of IRS scrutiny. The IRS utilizes a computer scoring system to evaluate individuals and businesses based on past returns that show patterns of losses, as well as the potential for unreported income," he says. "Too high of a score and you're potentially in the hot seat. "
List of Top Red Flags for the IRS:
For individual returns:
Nathan Miller, Partner and CPA
Taking large charitable deductions, especially non-cash charitable contribution deductions, such as Goodwill donations, without receipts
Consistently showing losses year after year on your rental properties or small home business
Underreporting or incorrectly reporting income, such as interest and dividends which are reported to the IRS by a third party
Claiming the home office deduction
Failing to report a foreign bank account
Claiming deductions that are higher than average compared to your income
For business returns:
Sole proprietors showing multiple years of losses. The IRS has Hobby Loss rules to try and prevent someone from deducting their hobby as a business.
High meal and entertainment expenses (Tip: only 50% is deductible)
Writing off a fleet of cars even though you have only a few employees
Claiming 100% business use of a vehicle
High repair and maintenance expenses (Tip: the IRS will look to see if there are any assets that should have been capitalized)
If you are unorganized or remiss in sending 1099s
Reporting less income on your return than was reported by your customers on Form 1099 (Tip: compare the 1099s received against your gross income on the return.)
Lori is an Experienced Senior Associate at Grimbleby Coleman, helping clients resolve accounting and internal control issues. She's a graduate of Golden Gate University and has her CPA and CPR, "just in case someone gets a big tax bill and needs to be revived." We assure she is joking!
Outside of the office, Lori is a member of the Fun Sport Bike Club of Modesto. She spends much of her time outdoors biking and running. In the summer, you might even find her "taking my best attempt at swimming" for a triathlon.
Lori admires Bill Crosby for his high level of education and belief that the future lies in education, Stephen King for his books and imagination, and her husband because he's simply "incredible".
Her favorite number is 13. "I feel sorry for it and believe in giving all a fair chance."