Audit Red Flags
As tax season unfolds, concerns over IRS audits loom for many, especially since the agency plans to ramp up with better service, advanced technology, and stricter enforcement (yep, that means more audits).
Even if you’re not a high-income earner, or a corporation, you aren’t immune to the dreaded audit. Since audits are not a lottery you want to win, you should know a few ways to help avoid it.
Historically, individual tax return audits have declined across all income brackets from 2010 to 2019 due to decreased IRS funding, as reported by the Government Accountability Office.
Still, it’s not wise to let this make you complacent. Several factors can trigger IRS attention:
- Unreported Income: The IRS easily flags unreported earnings through documentation like 1099 forms for freelancers or investment income statements. Discrepancies between your reported income and these forms can prompt IRS inquiries.
- Disproportionate Deductions: Claiming deductions that are significantly higher than typical for your income bracket can get flagged.
- Estimations and Round Numbers: Filing returns with estimated or rounded figures, especially for significant deductions, can signal inaccuracies and invite further examination.
- The Earned Income Tax Credit (EITC): Due to its refundable nature and complexity, the EITC often undergoes close inspection. This focus is partly due to a higher incidence of incorrect claims, leading to a disproportionate audit rate for EITC claimants.
While there’s no bulletproof way to guarantee that you will not get audited, you can take steps to help reduce your odds.
When you file your taxes, make sure you stay organized, keep your receipts, and report accurately.
For personalized guidance on all things related to your finances, reach out for a 15-minute consultation and chat about your plan (where you are now, and where you want to be in the future), it’s easy – just click the buttons below.
