Factors that trigger IRS audits

On Behalf of | Nov 21, 2022 | Tax Issues

The IRS has automated computer systems that detect errors and unusual information on tax forms. There are certain circumstances that cause IRS agents to pay more attention to one taxpayer’s account than to another. For payers in Pennsylvania, there are certain factors that increase the chances of IRS audits.

High-earning income

The highest-earning or lowest-earning taxpayers tend to want to hide their earnings from the IRS. People who earn considerable incomes often hide or understate some of their earnings to avoid paying taxes. Some payers include their business income and expenses but do not want to report personal earnings, such as expensive gifts, foreign assets or gambling earnings.

Independent contractor status

An independent contractor has no direct relationship with the employer and has to file his or her own taxes. A lack of professional responsibility often leads to tax issues. The contractor may forget to file or believe that his or her earnings are insignificant and do not have to be filed with taxes. In addition, an audit may occur to verify that the employer is classifying their workers correctly.

Retirement account withdrawals

Owners of IRA or 401(k) accounts are allowed to withdraw early funds without penalties. Most of them have to pay taxes on the withdrawal amounts. Many withdrawals made within a short period could trigger an audit if the money withdrawn is not tracked properly.

Each year, countless errors appear on IRS tax returns. Some people earn income that they refuse to report while others incorrectly report their earnings. Some owners of financial accounts withdraw their funds too early and too often. An audit is recommended to allow an IRS professional to review a taxpayer’s account and determine its accuracy.