6 Tax Missteps That Will Get You Audited

Nobody wants an IRS tax agent knocking at the door and asking for a shoebox full of receipts. Unfortunately, there’s no surefire way to avoid an audit of your tax returns.

However, you can sharply reduce the odds of an IRS inquiry by avoiding some common mistakes when filing your taxes. Here are several that should be on your radar.

Hiring the wrong tax preparer

This mistake might occur before you even get your name on the tax return. Select a tax preparer who is incompetent or unethical, and he or she could spell big trouble for you.

If the IRS audits one of the returns the tax preparer filed and finds significant problems, the agency might decide to audit all the returns that person prepared for the year, or for the past several years.

Don’t make this mistake. Read our advice on how to select the best tax pro.

Saying your hobby is a business

Let’s say you breed and sell dogs, or sell blankets on Etsy, or resell garage sale purchases on eBay. At the end of the year, you realize expenses exceeded what you made and decide to deduct a tax loss from your “business.”

However, if you do that for several years, the IRS is going to get suspicious. A business is something that makes money. Generally, if you haven’t made money in at least three of the past five years, what you have might actually be a hobby.

The IRS doesn’t allow business deductions for hobbies.

Taking questionable deductions or credits

If you donate a large percentage of your income to charity, be sure to keep careful records. Too many contributions relative to your income can be a problem. So, think twice about inflating the value of those items you dropped off at the thrift store.

Take a home office if you’re entitled to it, but be ready to defend it if necessary. The most important thing to remember is that you can only deduct a home office if you use that space primarily and exclusively for business.

Under the category of credits, abusing the Earned Income Tax Credit (EITC) is likely to get you in trouble. The EITC is a benefit designed for low- to moderate-income working people, particularly those with children.

Claiming a loss from a rental

When housing prices were depressed, some people converted homes into rentals rather than sell them. Those who found that the rent they received didn’t cover their mortgage and taxes might have assumed they were entitled to take a deduction for the losses.

Not so fast. You must either be an active participant in the management of your rental or a real estate professional to do that. The IRS has a long and confusing page with the details, but Nolo.com has a much clearer explanation.

Make sure you’re eligible to deduct the losses before doing so. Also, check out “10 Keys to Finding and Owning a Perfect Rental Property.”

Failing to claim all your income

Thinking you can keep secrets from the IRS is a mistake:

  • You might think the government won’t know about the money you earned freelancing on the side. But if the company you worked for files a 1099 form, the IRS knows.
  • You might think you can keep your alimony checks a secret. But if your spouse is reporting those payments on his or her return, the IRS knows. (Note: For divorces executed on or before Dec. 31, 2018, alimony is reportable as income by the recipient and deductible by the payer. In agreements after 2018, alimony isn’t deductible or included in income.)
  • You might think the interest you earn from foreign bank accounts is between you and that country’s bankers. But if those nice bankers are sharing information with the U.S., the IRS knows.

Don’t take the chance of getting caught in a lie. Claim all of your income. Then, the IRS won’t have any discrepancies to note, giving it one less reason to flag your return for an audit.

Making math errors

If you can’t add and subtract correctly, the IRS might start wondering what else you got wrong in preparing your return. Avoid this audit trigger by using tax software or an online program that will virtually ensure the calculations are correct. If you earn less than $69,000, you can find free online tax prep through the IRS Free File program.

Other sources of help include:

What’s your experience with the IRS? Share in our comments section below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
5 Reasons You Should Work for as Long as You Live
5 Reasons You Should Work for as Long as You Live

These benefits might make you think twice about retirement.

17 Surprising Things You Can Sell for Extra Money
17 Surprising Things You Can Sell for Extra Money

From your closet to the beach, the trash you find may be someone else’s treasure.

5 Common Medical Expenses That Medicare Won’t Pay For
5 Common Medical Expenses That Medicare Won’t Pay For

Don’t let these health care costs catch you off guard in retirement.

10 Things That Can Ding Your Social Security Payments
10 Things That Can Ding Your Social Security Payments

Here are 10 things that could mean less money in your pocket during retirement.

13 Small Gadgets Under $20 That Make Life Better
13 Small Gadgets Under $20 That Make Life Better

These inexpensive electronics will make your day-to-day life a little easier — and happier.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

This Simple Mistake Might Weaken Your COVID-19 Vaccination
This Simple Mistake Might Weaken Your COVID-19 Vaccination

Avoid doing this before you get vaccinated.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

9 Things You Should Never Leave in a Car
9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

9 Mistakes People Make When Cleaning With Vinegar
9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently
10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50
7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

29 Purchases That Can Save You Money Every Day
29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

5 Changes to Your Federal Tax Return Form in 2021
5 Changes to Your Federal Tax Return Form in 2021

The new Form 1040 features two new tax breaks, among other changes.

7 Things I Never Buy at Costco
7 Things I Never Buy at Costco

A bulk buy isn’t always the best buy.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.