Avoid IRS Audits: Top 7 Reasons Why Tax Returns Get Flagged
- Posted by Joshua Sells
- On April 21, 2022
- back taxes, back taxes owed, IRS Back Taxes, IRS Tax Attorney, jmsellslaw, tax attorney, tax relief, Tax Resolution
IRS Tax Audits: Top 7 Reasons Why Tax Returns Get Flagged
Tax returns might be something everyone has to deal with, but that doesn’t mean they’re always simple to understand. From ensuring you file your information before the April 18 deadline to avoiding accidental mistakes, the steps it takes to avoid an IRS tax audit are lengthy and complex.
Still, the efforts are more than worth it, as getting audited by the IRS can mean your tax return money sits for an extended period — all while you get to watch your friends and family receive theirs.
The good news is that an audit doesn’t necessarily mean you should start preparing to pay a penalty. It’s simply a chance for tax auditors to review your financial information a bit more thoroughly to ensure your tax reporting is accurate.
Still, they can be quite the annoyance, which is why it’s always a good idea to do what you can to prevent getting flagged. Though some IRS tax audits are performed at random, you should continue avoiding the following behaviors to reduce your chances.
1. Numerical Mistakes
No one is immune to making mistakes, but the IRS isn’t known to simply let them pass by.
Though you don’t need to stress out about a minor math error (the IRS is likely to simply hold onto your return for slightly longer to review it), even a wrongly inputted home address, Social Security number, and more can be cause for the organization to delay acceptance of your return.
So, what can you do to prevent a simple accident from getting between you and your tax return money? Keep things accurate throughout your filing process by:
- Allotting enough time to input information. Rushing leads to mistakes!
- Consider hiring a tax professional to prepare your return.
- Use an electronic filing software, as it can transfer information from your previous returns and even highlight potential miscalculations.
2. Lack of Proof for Self-employed Deductions
More people than ever are abandoning conventional careers to freelance or start their own businesses, opening a world of potential tax deductions in the process.
Expenses like business meals, home office space, supplies, and more can be written off on your tax return if they have a clear connection to your self-employment efforts. As such, tax auditors might be keen on taking a closer look at your information if some deductions don’t appear directly linked to your career.
All self-employed filers should be prepared for getting audited by the IRS by holding onto receipts and knowing how to prove their deductions serve their business. Of course, understanding which deductions can and can’t be included is the best preventative measure to avoid issues.
3. Disorganized Paperwork
As one of the most common reasons for receiving an IRS tax audit, losing track of your paperwork can be a recipe for disaster come tax season.
Many of these issues are related to the financial support programs offered by the federal government — something you can expect the IRS to crack down on even harder following the $16 billion in EITC payments improperly issued in 2020.
As such, if you received any benefits from the government during the year, you’ll want to keep your paperwork organized in case tax auditors come knocking. The good news is that, if you legitimately qualified for the program, you have nothing to worry about.
Still, you can prevent the situation entirely by avoiding accidentally submitting mismatched documentation, forgetting to file an important form, and other simple mistakes.
4. Abnormal Business Losses and Deductions
It is always in taxpayers’ best interest to take advantage of every deduction they qualify for come tax season. In fact, the sheer number of potential write-offs available can make it tempting for business owners to stretch the truth in their favor, even going as far as to create false expenses to increase their deduction amount.
Of course, this is simply a direct route towards an IRS tax audit, as the organization’s algorithms are always on the lookout for deductions that seem abnormal. For instance, tax auditors might want to know why the owner of a local mom-and-pop shop reported business-related travel expenses much higher than the average number.
The opposite side of the coin can also be means for an audit, as reporting losses for several returns in a row could prompt the IRS to confirm your business is still above board.
5. Uncommon Income Levels
Reaching the top 1% of earners is cause for celebration, yet it also means you’re at higher risk of getting audited by the IRS. As your income rises, so to do your audit rates, which can involve more than three different tax years.
Alternatively, those who declare zero positive income are also at a higher risk of being audited, since it may be caused by business expenses or capital losses the IRS will want to examine more closely.
6. Undeclared Income
Information from W-2s, 1099s, savings accounts, inheritances, and much more are all collected by the IRS to receive a comprehensive picture of your earnings throughout the year. As a result, if your reported income doesn’t match up with what was submitted from your employer, stock trade, etc., you can expect to encounter an IRS tax audit.
Unless you’re purposely attempting to commit fraud, this is a situation you likely won’t need to worry about. However, even simple mistakes can be enough to trigger an audit, so be sure you’re reporting every source of income and maintaining accurate records.
7. Large Charitable Deductions
Even if you simply have a deep interest in philanthropy, claiming large cash donations could prompt tax auditors to take a closer look if the deductions don’t seem to align with your income.
You probably won’t need to worry about this issue during tax season unless you’ve made a charitable contribution worth more than, say, half your income. If so, make sure you have your paperwork and proof at the ready, as it could trigger an audit.
Concerned About an IRS Tax Audit?
Don’t wait for things to go wrong. Contact J. M. Sells Law today to speak with an experienced legal expert!