Facing an IRS audit can be daunting. However, understanding the common triggers can help you avoid unnecessary scrutiny. There are several reasons why the IRS might choose to audit your tax return, ranging from simple mistakes to suspicious activity.
By being aware of these factors, you can take proactive steps to reduce your risk of an audit and ensure compliance with tax laws.
1. Math errors and discrepancies
A common reason for an IRS audit is mathematical errors or discrepancies on your tax return. Simple mistakes, such as incorrectly entering income or deductions, can raise red flags and prompt the IRS to take a closer look at your finances. To avoid this, double-check your tax return for accuracy. Consider, too, using tax preparation software or hiring a professional to help.
2. High income or complex returns
Those with high incomes or complex tax returns are more likely to have the IRS audit them. This is because the agency has limited resources and focuses its efforts on cases where the potential for non-compliance is greatest. If you earn a substantial income, have multiple sources of income or claim large deductions or credits, expect increased scrutiny from the IRS. Keeping detailed records and supporting documentation can help substantiate your claims. In doing so, it can reduce the likelihood of an audit.
3. Unusual deductions or credits
Claiming unusual or excessive deductions and credits on your tax return can also trigger an IRS audit. While you have the right to take advantage of tax breaks, be cautious about claiming deductions or credits that seem too good to be true. The IRS compares taxpayers’ deductions and credits to national averages and industry standards. Thus, deviations from the norm may attract attention. When claiming deductions or credits, be sure you can substantiate them with documentation.
While the prospect of an IRS audit can be unsettling, Kiplinger notes that less than 1% of taxpayers wind up having the IRS audit them. By ensuring accuracy and maintaining transparency on your tax return, you can reduce the likelihood of an audit and navigate the tax filing process with confidence.
