The 5 biggest reasons for an IRS audit

In the US, about one million people are audited by the IRS each year. What can bring on an audit? Well, here are some of the biggest reasons taxpayers are audited:

1. Failure to report all income. The IRS will match Form W-2 and Form 1099 with your tax return information. If the numbers don't match up, you'll get a notice from the IRS letting you know there's more tax due.

2. You goofed. In 2017, the IRS caught about 2.5 million errors. The biggest ones were in deductions and credit calculations. Taxpayers with errors in these areas will not only likely owe more tax, they've raised a red flag on their return, bringing it under greater scrutiny.

3. Income that's high or low. Taxpayers with an Adjusted Gross Income between $25,000 and $200,000 are at the lowest risk of an audit. Those who are on either end of that scale are more likely to be audited.

INCOME: ODDS

$0 : 50/1

$25K - $200K : 145/1

$200K - $500K : 210/1

$500K - $1M : 90/1

$1M - $5M : 45/1

$5M - $10M : 25/1

$10M+ : 15/1

4. You're the boss. Business owners are also at risk of an audit as the IRS knows business deductions are confusing. You can get in trouble if you're incorrectly deducting personal expenses or you have your business classified as a hobby in order to eliminate deductions. Those businesses that are cash-heavy are more likely to be audited as there are higher fraud rates. Best way to be safe, keep good records, get sound tax advice, and ask if you have questions.

5. You claim EITC. The Earned Income Tax Credit is famous for confusing taxpayers, who routinely claim it incorrectly. This leads to calculation errors and likely an audit as the IRS keeps a close eye on returns with EITC claimed.

Regardless of what caused the audit, you should always seek professional help. Don't deal with the IRS alone.