IRS and FTS Audit Targets
While the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB) (the government) conducts some of their tax audits randomly, many government audits target tax payers for specific reasons. While the formula is not made public, the following factors can help you determine whether the government will be coming after you:
- The more income you earn, the more likely it is that you will be audited. High income earners are as much as eight times more likely to be audited than those with average incomes.
- If your income was earned from self employment, you are over three times more likely to be audited than if you work as an employee.
- If you give large charitable contributions to your church, synagogue, other place of worship, or other charitable organizations, you are twice as likely to be audited by the government.
- If you are self employed and take a home office deduction, you are nearly three times more likely to be audited.
- If you make an error by failing to report 1099 income and the government detects the mismatch, your chances of being audited are more than three times higher.
- If you claim 100% business use of a vehicle, your chances of being audited by the government are nearly three times higher.
- If you own rental property, you are almost three times more likely to be audited.
- If you claim a deduction for rental property losses, your chances of being audited double .
- If you take deductions for business meal expenses you are almost four times more likely to be audited by the government.
- If you own and operate a business that accepts a high percentage of cash, your chances of being audited are more than four times higher. Examples are hair salons, cleaning services, gardening services, handyman services, restaurants, home maintenance services, and vending machine operators.
- Writing off a loss for a hobby will increase your chances of being audited by more than 80%.
The list provided above is only a partial list. There are many audit selection factors the IRS and FTB do not make public.
Please be aware that if you claim more than one of the deductions discussed above, your chances of being audited increase.
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