High-Risk Tax Audit Targets

Worried about the possibility of a tax audit? The odds are low: during the past few years, less than two percent of all tax returns were audited by the Internal Revenue Service (IRS).

Your chances of being audited depend on:

• What type of income you report
• The amount of income you report
• The type of business you're in
• The tax deductions you report
• Your past history with the IRS

Your odds are higher if:

• Your business runs on cash transactions (such as restaurants, bars, retail stores and so forth) where it would be easier to skim cash undetected
• Your itemized deductions are high in proportion to your income
• Your business expenses (especially entertainment and travel) are high in proportion to your income
• You claim tax shelter investment losses
• You or your business have been previously audited and found to be owing taxes

It's especially important to keep good records, such as:

• Detailed accounts of daily business cash transactions
• Receipts for charitable deductions and all itemized deductions
• Investment loss documentation

It's also a good idea to consult with a tax attorney now to learn what more you can do to protect yourself should you be audited in the future.

Personal Tax Message Board for more help