Money

Unless you think a meeting with the IRS sounds like fun, avoid these red flags

By: Nancy Smith
Published: April 2008   [ Updated: Feb 2, 2009 - 1:13:46 PM ]

The IRS aggressively guards the secret formulas it uses to target taxpayers for audit, but here are five triggers that tax experts say are likely to earn your return a closer look.

A big increase in deductions from last year to this year. Look out for this if you’ve just started a new business in your home or you’re taking a deduction for part of your mortgage.

The home-office deduction. A perennial red flag, because you can deduct a home office only if you use that space for nothing else. A TV room that doubles as a study doesn’t count.

An unlikely ratio between income and deductions. No one outside the IRS knows exactly what the ratio is, but if you earned $60,000 and donated $10,000, that’s going to raise eyebrows.

Discrepancy between reported income and third-party filings. For example, you can make a last-minute IRA deposit before April 15; just make sure the bank reports it as a 2007 contribution.

Deductions for using your personal car for business. Technology has made this much easier. Global-positioning-device records can bolster your claims.