WILL A CHANGE IN PATTERN BE A RED FLAG?
No. Here's why:
One year you could be earning a salary of $75,000 per year.
The next year you could be self-employed, earning $25,000 per year.
The next year you could be in a mental institution, earning -0-.
The next year you could be earning a salary of $500,000 per year.
The next year you could be in a prison, earning -0-.
The next year you could win the lottery of $10,000,000.
The next year you could be retired on the beach in Tahiti, earning -0-.
What does this pattern mean? Absolutely Nothing. Only that people's lives can change from year to year. The IRS does not even waste their time tracking the pattern or year to year relationship of the numbers, because they know the results of that type of analysis would be meaningless.
However, the IRS does compare individuals to their occupational group. Teachers, nurses, chiropractors, police all fit within distinct occupational groups, and can be compared to their peers. However, all variations from the norm do not automatically result in an audit. People can be very different, and therefore, their tax returns can vary widely.
The best approach is to be able to document all, or most, of the deductions claimed on the personal or business tax return.