Red Flags

• Most tax returns are audited because of red flags raised about the filer or because a computer program randomly selects the return. While you can't do much about random selection, you can try to reduce your exposure to red flag items. Some of these include math mistakes or errors in interest and dividend reporting. If you receive most of your income in cash, it will also raise a red flag.
  
  

Math Errors and Form 1099

• The biggest reason people receive audits is due to math errors and mismatches in interest and dividend documentation. Math errors are primarily due to addition and subtraction mistakes. The good news is that these errors usually only lead to a cursory audit. The lesson: Double-check your numbers before submitting your return. If the dividend and interest amounts reported to the IRS don't match the amounts on your return, it will also raise a red flag. The lesson: Verify these amounts are correct as soon as you receive Form 1099, of which you may get several depending on how many jobs you have.
  
  

Nontraditional Income and Whistle Blowers

• If you receive your income in cash or in nontraditional ways, the IRS will consider your income somewhat "dubious" due to the lack of documentation. In these cases, the IRS is looking for unreported income. Small-business owners and the self-employed are included in this group. Also, be mindful of talking to others about your tax strategies. Whistle-blowers are eligible for rewards of up to 30 percent of the additional tax collected. The lesson: Report all income and keep your tax strategies to yourself.