Tax season can be a stressful time for many, but the anxiety does not always end when you file your return. The looming possibility of an IRS audit can keep taxpayers on edge long after April 15th. Understanding what triggers an IRS audit is crucial for peace of mind and proper tax planning.
Common IRS audit triggers
The IRS employs several techniques to select tax returns for audits. Some audits result from random selection, but many arise due to specific triggers. Here are some common audit triggers:
- High income: The IRS will more likely audit individuals with high incomes, specifically returns with income exceeding $200,000.
- Large deductions: Claiming large or unusual deductions compared to your income can raise red flags. This includes charitable contributions and business expenses.
- Unreported income: Not disclosing all income, including side jobs or freelance work, can trigger an audit. The IRS receives copies of all W-2s and 1099s, so they know what you earn.
- Excessive business expenses: Self-employed individuals must ensure their business expenses are legitimate and well-documented.
- Home office deductions: Claiming a home office deduction requires strict adherence to IRS rules. You should only use the space exclusively for business.
If you receive an audit notice, the first step is to understand the type of audit you are facing. The IRS often conducts correspondence audits (by mail), office audits (in-person at an IRS office) and field audits (at your home or business).
Each type of audit requires different preparation and responses. After gathering all relevant documentation, you must respond promptly to IRS requests. You have rights as a taxpayer, including the right to representation during an audit.
Seeking legal guidance is key
If you face an audit, or suspect you might, consider working with a Pennsylvania attorney. While it is possible to address an audit on your own, the complexity of tax law often makes professional help invaluable. Your attorney will guide you to the most effective resolution to your tax matters.
