by Bryan Kisiel, CPA CEO, Kisiel & Associates Director of Tax Planning, SecondHalf Coach Wealth Management
7RED
FLAGS
That Could Trigger an IRS Audit
N
o one wants to go through an IRS audit. These days, an audit happens when the IRS thinks that the tax money they could recoup from an audit exceeds the cost of performing the audit itself, or if they believe there may be criminal activity involved. As long as you’re doing everything right, there’s no specific reason to worry about an audit. However, sometimes even if you think you’re doing everything right, you may accidentally raise some red flags. Following are seven things that could inadvertently trigger an IRS audit.
1. Unusual Business Expenses
As a business owner, you’re entitled to a number of tax deductions that ordinary office supplies, business travel expenses and even certain meals. However, there are a host of other business expenses that are dubious when it comes to taking a deduction. For example, except under specific circumstances, you probably can’t deduct tickets to entertainment events, donations from which you personally benefit, com-
Anything that falls far below the norm may raise some alarm bells.
38 GOALMagazine: A Publication of Go2Goal | Spring/Summer 2020
muting expenses or all those generous cash tips you gave to hotel housekeeping during the year. If you do have unusual business expenses that you’re certain you should be able to deduct, be careful about keeping your receipts and be sure to run them by your CPA.
2. Sharp Decline in Income
If you’ve been in business for several years with steadily increasing income, you’ve set a pattern. But if one year you all of sudden report a sharp decline in income, this raises a red flag that could result in an audit. The reason is that the IRS has a general idea of what you should be making according to your profession and level of experience. Anything that falls far below the norm may raise some alarm bells. Now, there may be a good reason why you earned less; maybe you are transitioning into retirement or you had some health issues that prevented you from working as much as you did previously. But if everything else is the same, you should be ready to explain why you’re only reporting a fraction of your normal income.
