A good percentage of the US population think it is perfectly fine to cheat on their tax returns. The bad news is that these unscrupulous individuals have made the IRS more keen on going after those who make it a habit to short-change the government and this can bring trouble to your doorsteps even if you play mostly by the rules. A single questionable deduction could get you flagged and thus subjected to time-consuming and often costly IRS audits.

To help you avoid this inconvenience, you may want to know exactly what an audit flag is and how it can affect you. IRS computers that process tax returns are programmed to identify any entry that seems out of the ordinary. Any item that strays too much from the norms of statistics will then be flagged. These flagged items will then have to be checked by an IRS employee to see if there is a need to conduct an audit or not. While having flagged items on your returns does not automatically mean that you will be audited, it does increase the likelihood of an audit because it means that the IRS will take a closer look at your filing. So the more flagged items you have on your returns, the bigger the likelihood of an audit being conducted.

Following are some common mistakes or things that you may overlook which may be considered red flags with the IRS. It is important that you avoid these errors in order to lessen the risk of getting audited. Here we tackle the common pitfalls in filing personal returns as well as returns for small business tax. In personal tax returns, a simple case of carelessness is the most common culprit that causes the IRS to take a closer look. The IRS computer often flag returns with math errors or missing information because it cannot make sense of the data so make a special effort to avoid these bonehead errors.

Another very obvious red flag is the failure to report a certain income. Bear in mind that every person or company that gives you a copy of a 1099 also provides one to the IRS so be sure to report all your miscellaneous income. If you are planning to report a lower income than what you actually receive, heed this bit of warning: if the IRS sees that you are somehow receiving a significantly lower pay than others who are in the same profession, they will most likely dig deeper. On the other side of the coin, a very high income could also raise the chances of you getting audited because people who earn over $100,000 per year are five times more likely to get audited than those who earn less.

Unexplained and drastic fluctuations in income could also spell trouble for you. The IRS may interpret this to mean that there was an underreported income somewhere. The same is true if you put round numbers in your returns. It is highly unlikely that your income is exactly $500 or that you qualify for a deduction of exactly $10,000 so be very careful in using round numbers. Indicating too many charitable donations can also be a red flag issue, taken from the belief that too much charity is questionable. In case it is true that you donated a total of $10,000 to charity, be sure to keep all of your receipts. Bear in mind as well that the IRS is trained to deal with the most common attempts to evade taxes so do not even consider participating in any tax scam. In claiming tax deductions to which you are rightfully entitled, veer away from too many itemizations as this can also raise a red flag. Finally, be sure that your state and federal returns contain matching information because discrepancies between the two are among the most common examples of how carelessness can cause a great deal of trouble.

In the matter of filing tax returns for small business, take note that the IRS normally questions individuals who continually show losses on a small Schedule C while they hold a regular job. You also need to be careful in filing your returns if you have a home office because the IRS considers this as a huge red flag. If one or more of your family members work for your business, make sure that you can prove it because the IRS is very keen on this issue. The reason: “hiring” a family member is a very common way of dodging taxes. Furthermore, when filing for business deductions, make sure that all the expenses you file can be properly substantiated. For example, you cannot claim a business deduction on a trip unless it served a purpose directly related to your business. Entertainment deductions also fall within this category. You can only consider lunch as an entertainment deduction if you actually discussed business proposals and strategies with your lunch companions.

Again, you don’t have to be afraid of audit flags since they do not automatically lead to an audit. In fact, audit flags do not even mean that there is actually something wrong with your return. It simply means that your return will most likely be reviewed by an actual person rather than just a computer. It does increase the chances of your return being audited as compared to those returns without audit flags so it is always best to be careful.

Remember that IRS audits are regularly done and the people being audited are chosen at random. The red flags cited above should not even be an issue if you are an average wage earner and if you are filing an honest return. Honesty is still the best defense against these audits so be sure to report all of your income and save all of your receipts to make sure that you can defend any deductions that you claim. It may help to have an accountant assist you with this if you are not sure that you got everything right, but the most important thing is that you double-check the return for obvious errors.