As a CPA, I am often asked what items can raise a red flag with the IRS when filing your individual income tax returns. I always tell my clients that an IRS audit is nothing to fear if you are properly reporting all of your income and you are only taking deductions and credits for which you qualify. Good record keeping is key. However, here are a few items that could increase your risk of an IRS audit:
1) Taking large charitable deduction write-offs – If you make a large number of charitable deductions, it is important that you have receipts for them. Cash or check donations should be supported with a receipt from the done organization showing that no goods or services were received by you in return for your gift. Also be sure that the organization is a bona-fide tax exempt organization. If in doubt, you can check at the IRS website at www.irs.gov. Non-cash donations (donations of goods) should be valued at thrift store or garage sale value. If you donate more than $500 in non-cash items, you will need to provide your tax preparer with some additional information regarding dates of donations, the done organization and address, a listing of items donated along with their original cost and thrift store value.
2) Deducting business meals and entertainment – this is an area that the IRS regularly scrutinizes. In order to take a deduction for business meals and entertainment, you must have a business purpose for the expense. Document on your receipts who you met with and what the business purpose was for all meals and entertainment expenses.
3) Claiming 100% business use of a vehicle. Many people insist that they use their vehicle only for business, but in reality, this is rarely the case. Keeping good records of miles driven and tracking business vs. personal use will help you substantiate your deduction with the IRS in case of an audit.