AUDIT RED FLAGS

• Not reporting all income. The IRS is adept at "matching" income reported about you by employers, banks, and brokerage firms against what is reported on your tax return.
• Self-employment. If you work for yourself and file Schedule C, you have a greater chance of an audit. The IRS is especially suspicious of businesses that look like hobbies.
• Dealing in cash. IRS auditors are trained to search every nook and cranny of the cash-based financial world to detect cheating.
• Out-of-line figures. IRS computers compare returns with those filed by taxpayers with similar incomes. If deductions are significantly higher, you may be asked why. Of course, this doesn't mean you shouldn't claim every deduction you are entitled to. You just need to be aware of how audits work and hang onto the proper records.
• Large travel and entertainment deductions.
• Being a "tax protestor."Some people refuse to pay because they claim taxes are unconstitutional. The IRS has little patience for these arguments.