Tax audits are performed by the IRS as a way of minimizing the tax gap – that is to say, the amount owed to the IRS vs. what the IRS actually receives in taxes.
It’s true that some IRS taxes audits are given at random, but these are rare cases and you’re unlikely to experience one. On the other hand, if you’re doing things that are making the IRS suspicious, your chances of receiving an audit go up substantially.
Here we’ll cover 5 things that can trigger an IRS audit that you want to avoid at all costs.
Not Reporting All Of Your Income
It’s tempting to only report income from your main job and leave income from freelance work off of your tax forms. Suppose you work mainly as an auto repairman but also do some contracting work on the side. When the time comes to report your income on your W-2 form, you might be tempted to forego the 1099 form altogether – this is a bad idea, as whoever was contracting work to you has already sent a copy of the 1099 to the IRS. It won’t be long before they see that you’ve omitted it.
Having High Or Low Income
The more you earn, the more the IRS is likely to take an interest in you; the same goes for small earners. Taxpayers who earn $500,000+ per year were the only ones to risk more than a 1% chance of being audited in the year of 2018; interestingly enough, those who reported no adjusted gross income saw a 2.04% risk.
Screwing Up The Math
Even a seemingly minor math error can be enough to trigger an audit. If the IRS is suspicious of you, saying you forgot to carry the one isn’t going to get you off the hook. It’s incredibly important to make sure your math is correct.
One of the best ways of doing this is to hire a professional CPA.
Claiming Too Many Itemized Deductions
This is one area where the IRS can catch people fairly easily. If you are claiming too many itemized deductions or writing off an unrealistic amount of charitable donations, that’s going to start setting off some alarm bells.
Another example would be reporting high amounts of spending on mortgage interest which just doesn’t correspond to your level of reported income.
There are plenty of examples of people overdoing it with their itemized deductions and triggering an audit; don’t be one of them.
Those who are self-employed have a lot of options as far as deductions go, such as home-office, mileage, travel, meal, and entertainment deductions.
But with all of these possible deductions come the possibility of too many deductions. For example, if you travel a lot for work, that still doesn’t mean it doesn’t look incredibly suspicious to deduct 100% of your travel expenses as “business related”.
When it comes right down to it, the best way to avoid an IRS audit is to be honest and report your income and deductions accurately.