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IRS Audit News

There are many red flags that can increase your chances of being audited.  However, the IRS has increased its audit focus on several areas in particular.

If you claim a relatively large amount of charitable deductions, you can create additional scrutiny.  The IRS will also be checking to see if the required appraisals for expensive noncash items have been obtained.

The IRS will be looking at taxpayers who claim the health premium credit for insurance bought through an exchange.

Claiming the earned income credit will cause additional attention from the IRS.

The IRS is still concerned about significantly underreported tip income.  They will be doing a national survey of consumer tipping practices at businesses where tipping is prevalent.  The IRS first started this in 2015, and they’re extending it.

Deducting alimony will draw attention from the IRS as a result of the 2018 tax law changes.  Claiming alimony is now more complex, and the IRS will be auditing more taxpayers with alimony deductions to ensure they are following the new tax laws.

The new alimony rule does not go into effect until 2019 and only applies to divorces executed or modified after 2018.  If a divorce goes into effect after December 31, 2018, alimony payments are no longer deductible nor must the recipient declare the amount as taxable income.

For people who must pay alimony, this change can have a significant impact on your taxes.

With the changes from the 2018 tax laws, the IRS will be checking to make sure businesses aren’t deducting entertainment expense since this is no longer allowed.

Sole proprietors who claim 100% business use of their vehicle is something that will draw more attention for audits.

Large amounts for food and travel will be more scrutinized.

Small businesses which receive large amounts of income in cash will be examined to make sure all of the cash income is being reported.  The IRS is aware from auditing these types of businesses that they under-report their income or take larger write-offs then they should take.

Taxpayers with several years of sole proprietorship business losses, which also have income from wages will be targeted.  Additional attention will be given to people taking losses from businesses which appear to be hobbies.

Taxpayers with businesses who have very little adjusted gross income will be getting more attention.  The IRS realizes taxpayers need money to pay for their living expenses.  The IRS will question them on how they are getting their money to pay their living expenses.

Anyone who invests or deals in virtual currency will increase their chance of being audited.

David Zubler is a tax accountant in East Tennessee, the author of three books, and a philanthropist.  All of his proceeds from the books go to a charitable foundation he created for underprivileged children.  He is also the founder of Your Tax Care which provides tax education. David can be reached for questions and consultation at yourtaxcare.com.