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7 Things that Could Increase Professor X’s Chance an IRS Audit

Professor Charles Xavier is one rich guy. Indeed, Professor X comes from money, and he uses his money to create a special school for mutants on his family’s estate. However, Professor X might be at a disadvantage when it comes to the IRS. After all, he’s a millionaire.

According to a recent article on CNN Money, one in eight millionaires are audited. It looks as though the IRS is stepping up efforts to catch tax evasions by auditing the wealthiest among us. And, while there is no way to completely avoid an audit, there are some things you can do that increase your chance of an audit. Professor X has a one in eight chance of being audited by the IRS. However, those chances go up even more with the following practices:

1. Handwritten Tax Form

It’s quite probable that Professor X has someone else that can fill out his tax forms on his behalf. Indeed, he probably pays big bucks for a competent accountant. But, if Professor X were to decide to fill out his tax forms by hand, that would raise a red flag by the IRS. The thinking is that a handwritten form is more likely to contain mistakes. And that means the IRS might scrutinize your form a little closer.

2. Bragging about Your Prowess Avoiding Taxes

Have you been taking advantage of a loophole? Do you have some shady way of making it look like you don’t owe as much as you really do? If so, it’s best not to brag about it. We all know that Professor X can keep a secret, so he probably doesn’t have to worry about this. But can you keep a secret? Because if you brag about your prowess about avoiding taxes on social media, you could be taken down. In fact, the IRS is actually searching Facebook and other social sites, looking for those bragging about their ability to get out of paying what they owe.

3. Too Many Business Losses

Professor X might be able to claim some business losses due to his school. However, too many business losses, for too many years in a row, raises a red flag to the IRS. If you report losses for three years in any five year period, the IRS can decide to classify your business as a hobby. And that means you can’t deduct losses in an amount of more than your income. And if you keep trying, you might just be audited.

4. Your Interest and Dividend Income Doesn’t Match Up

Do you invest? If so, you want to make sure that the income on your supporting documentation matches up with what you report on your tax forms. If your income doesn’t match up with what appears on the forms that fund managers and banks send you — and the IRS — then you could find yourself audited. Be careful to make sure that everything adds up when it comes to your investing income.

5. Your Income Doesn’t Match Your 1099s

In some cases, you might be enjoying a side hustle. If you have a home business, or if you contract out as a freelancer, you will be issued 1099s. However, sometimes you might not receive a 1099. This doesn’t mean that you don’t have to report your income. In fact, the IRS likely has a copy of the 1099, even if you don’t. So, the income you claim may not match up with what the IRS has. In this case, you are in for an audit. Professor X can just read minds to find out if a 1099 was sent to the IRS, while it was not sent to him — but you don’t have that ability. Accurately report your income.

6. Your Tax Return Stands Out from Your Peers

There are lots of ways that Professor X stands out in a crowd. However, he needs to do his best to blend in when it comes to his tax return. The IRS computers crunch numbers about different tax returns, and different tax brackets. If you stand out from your peers, you could be audited. This could mean taking more charitable deductions than your peers, or claiming more losses than your peers in the same tax bracket. The IRS has a formula that helps them work it out, and if you stand out in any way, you could be audited.

7. Your Tax Preparer is Shady

While using a tax professional can help you get all the deductions and credits you are entitled to, and it can cut down on your errors, you do need to be careful. Some tax preparers are shady, and some are scammers. Your professional might use methods that are unsavory, and you’ll still be on the hook for what you owe — and subject to an audit. Be especially wary if the tax professional claims to be able to give you a tax refund quickly, before looking at your situation and double checking your paperwork, that could be a sign of trouble. Get out of there fast.

Bottom Line

This tax time, realize that there is no way to completely avoid a tax audit. The good news, though, is that most audits are actually simple matters that can be taken care of once a mistake on your tax form is fixed, or once you show your supporting documentation. As long as you have good records, and as long as everything you do is above-board, you shouldn’t have much to fear from a tax audit.