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Time Stamps:
0:00 - Intro
0:50 - IRS Letter Red Flags
4:05 - Red Flags That Trigger Full Audit
8:44 - We Are Here To Help!

What are some tax filing red flags?
First, obviously, this question relates to being audited. I think it's important to know that when the IRS gives you statistics on how many people they audit when they send a letter to you saying they made an adjustment or asking for a copy of your W-2 or 1099, or any little thing like that, just a type, a letter that's simple. They still consider that an audit.

When you and I think about an audit, we're thinking about, the IRS knocking on your door, you have to go into their actual office, they want all my itemized receipts. They just want a deep level of information. Those are the audits we're typically, typically referring to.
So let me first say that. When it comes to the IRS letters themselves, there are a few things that cause those.
- When you do your own taxes, surprisingly, a large percentage of people who self-prepare have inputted their information incorrectly. That is an automatic letter from the IRS because your calculations are gonna be off.
- Missing information is also another reason.
- Another common thing that people miss is gambling winnings. If you go to a casino and you make more than, $250 or 600, you have to actually, give them your information so that they can create a form for you.
- If your estimated payments are inputted incorrectly, so maybe you put a number on the return, but you made more payments or fewer payments. That's going to cause a letter to come from the IRS. Now, when you get those, obviously the best thing to do is check and make sure you know how much you paid the IRS. They often apply your payment to the wrong tax year (I think, on purpose.) So then it's your job to show them the clear check image from your bank account and say: “Hey, I actually paid that and you need to apply it to this tax year.”
- An automatic red flag, unfortunately, is if you make more than $200,000, that's one threshold. So like most taxpayers, 1% of them get audited. 4% of taxpayers who make $200,000 or more get audited. And if you make a million dollars or more, 12% of those taxpayers get audited. So the more money you make, the higher likelihood it is.
So now it comes to the red flags that could likely result in you need to provide a lot more detailed information, or the IRS is going to come and a full-on examination as they call it.
- If you have a high W2 income and a Schedule C business that has a loss, and the more significant that loss, the bigger the red flag.
- Schedule Cs in general actually is a bit of a red flag. Like I said, especially the bigger the loss. We have some strategies that we use where a Schedule C is involved, but those Schedule C businesses show zero or a small, like a $100 net income.
- There's a form where you can write off your home office space. It's called the business use of home. That is an audit trigger. If you can get away with not filing it because maybe it's a super ridiculous deduction, and requires calculations, but you don't really get much of a benefit of it, maybe consider not filing it.
- Sometimes people do what they call a CRAT, (charitable remainder annuity trust.) Those usually end up getting flagged for audits because it's on the dirty dozen list. People have abused it over the years. That doesn't mean it's not legit, it's just because of the abuse the IRS has a higher likelihood to audit that.
- Not filing at all ends up being an audit trigger. Now that usually plays out after multiple years
- Conservation easements are another big trigger. Great tax strategy. They are legit. But there are people in that space that are scoundrels and you really want to make sure you do your due diligence and stay away from the really bad companies.
- Captive insurance is another strategy. Again, high-end. Some of these you may not have heard these terms before, but, an abusive scenario, still a legit strategy, but it's got to be done the right. So chances are you might get an audit if you have that in place.

So keep an eye out for these red flags! And if you find yourself in one of these situations, we are happy to help. Send us an email at info@incitetax.com!

John Briggs | Tax Genius
info@incitetax.com
801-999-8295

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