High-Risk Tax Audit Targets
Sherrie Bennett
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.