If your income fluctuates by large amounts from year to year your chances of being audited by the Internal Revenue Service increase. 

When the Internal Revenue Service sees these fluctuations (Or more likely when their software notices and flags these income fluctuations) they often suspect that something is wrong.

Once again if your income is fluctuating it is not a big deal; just make sure that you file your tax return correctly and that you keep the required documentation in case of an IRS audit.

Mike Sylvester, CPA/ABV 

There are many red flags that increase the odds of your tax return being audited by the Internal Revenue Service.  I will be discussing several of the more common “red flags” in a series of posts over the next couple of weeks.

One of the most common “red flags” is a tax return that has an unusually large amount of itemized deductions in relation to the amount of income listed on the return.  The Internal Revenue Service has grouped tax payers into several different income groups and has determined a range of “reasonable” amounts of itemized deductions for each income group.

If you report a higher amount of itemized deductions than the IRS considers “normal” for your income then your chances of IRS audit increase.

This does not mean you should not claim these large deductions; it just means that you need to document these deductions and realize that by claiming these large deduction the odds of an audit increase.  This means you need to keep good records for all of the items listed on your tax return not just the “itemized deductions!”

Mike Sylvester, CPA/ABV

As of January 1st, 2007 Indiana residents have been eligible for a non-refundable tax credit if they contribute to an Indiana 529 plan.  Taxpayers receive a state tax credit equal to 20% of their contribution to an Indiana 529 plan up to a maximum tax credit of $1000.

This is a great opportunity to save on your Indiana taxes and is something many Indiana residents should strongly consider. 

Mike Sylvester, CPA