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Red flags that could lead to an audit

The Internal Revenue Service lets the vast majority of tax returns go through without an audit. However, they look for red flags that tell them to take a closer look at specific returns.

That doesn't mean that you did anything wrong. A red flag may turn out to be nothing at all, and you won't face fines or penalties.

For example, saying that you worked from a home office counts as a red flag, experts claim. After all, you're allowed to deduct some of your expenses. The IRS wants to be sure that you're actually deducting your office space, but not deducting a family room and calling it your office even though you never work there.

Again, the home office deduction isn't illegal. You can file it without fear of an audit. Even if you're audited, that doesn't mean you shouldn't have claimed your office on the return. However, it's still a potential trigger that can cause the IRS to look a bit closer, especially if the office exemption seems unexpectedly large.

Other red flags include reporting a lot of losses, earning over $200,000 in a single year, contributing far more than expected to charity or reporting numbers that look like they've been rounded -- or like you just guessed.

If you wind up facing an audit, don't assume that means you've done something wrong. It's a trap that people often fall into. The reality is that your return still could be 100 percent accurate, but the IRS just ran the audit to make sure. The key is to know what legal steps to take and how best to proceed with this potentially complicated process.

Source: The Motley Fool, "9 Tax Audit Red Flags for the IRS," Sean Williams, accessed Aug. 28, 2017

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