Because of ongoing budget cuts, the chances are low that you will get audited. But why put yourself at risk at all? There are some “red flags” that will catch the ever watching eye of the IRS. Making sure you aren’t raising any of these flags will greatly improve your chances of “not” being audited by the IRS. So here are some things to be aware of.
Report all of your income. Wages from most jobs are reported on W-2 forms, while any interest, dividends and capital gains you made are reported on 1099s, as is income earned by independent contractors or freelancers. Those forms are sent to both you and the IRS. So be sure to include all information from them on your federal tax return. The IRS uses these forms to compare what is reported with what is claimed. A discrepancy may trigger an audit.
If anything seems weird, explain it. The IRS has its tentacles up for unreported income, so explaining anything that looks questionable may dissuade the agency from pursuing an audit. For example, if your net income is too low to live on given such factors as where you live and your family size, include a disclosure statement detailing how you supported yourself, including any savings, loans or credit cards that you used to pay the bills.
Be smart about mortgage interest: When you own a home with your spouse, your lender will send you and the IRS a Form 1098, which records how much mortgage interest you paid during the year. Sometimes the form only includes the name and Social Security number of one spouse, should that person die, and the surviving partner tries to claim the mortgage interest deduction, that may trigger a correspondence audit.
Just to be safe, have the lender change the name and Social Security number on the 1098 before filing. Or, if there’s not time for that before April 15, file for an extension and submit your return when you have an amended 1098 in hand.
Chances are the IRS won’t look at you twice, but why stick out like a sore thumb.