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So IRS audits have a lot of bad connotations that surround them but on a very basic level an IRS audit is the IRS coming in and checking that your tax return was filed correctly. What the IRS is looking for in an IRS audit is they’re looking for one of two things. Number one they’re looking for any income that wasn’t reported or income that wasn’t reported correctly and number two any expenses and/or credits that were not being accounted for properly or not taken appropriately. The combination of income and expenses contributes to your taxable income and the amount of tax you pay so essentially what the IRS is doing is they’re coming in and just verifying that the information is correct. Now what I tell my clients is that tax returns tell a story. So for example you were sitting, you’re watching this video and you have a tax return and that tax return contains a treasure trove of information about you. It tells whether or not you’re married, it tells whether or not you have kids, it says where you live, it says where you earn income from and it says to some limited degree

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We get asked this a lot because what taxpayers want to do is they want to try and make their return audit proof. So there are a number of things that the IRS looks for on both business and personal returns but it’s really difficult to say what exactly red flags are. I can give you some general examples. So a general example of a red flag is a round number. To the extent you’re using round numbers on the return, the IRS thinks that you’re probably guessing because if you say “well I spent five thousand dollars on advertising,” you probably didn’t spend five thousand dollars exactly. You probably spent four thousand nine hundred ninety-eight dollars or five thousand two dollars or whatever but to the extent you’re showing exactly round numbers, that’s usually a red  flag and an indication of guessing. Number two would be unusual expenses on a return. So things that look like fun, that’s what I tell my clients are things that usually get audited. So international travel, lots of meals and entertainment expenses, things like that. Well that’s a lot of expenses, things like that are going to get you probably targeted but what most people don’t realize is the IRS actually audits people based on statistics. So you can imagine a graph, so you have most people who are let’s say they’re restaurant owners.

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