With the IRS deploying its nearly $80 billion in funding this tax season, there have been concerns about increased audit activity. However, experts advise that there’s no need to worry as long as you maintain proper documentation. That said, certain red flags are more likely to trigger an audit by the IRS.
According to Preeti Shah, a certified financial planner and certified public accountant at Enlight Financial in Hamilton, New Jersey, “Round numbers are a dead giveaway.” Shah advises that reporting round numbers on your tax return can catch the attention of the IRS and increase the likelihood of an audit.
In addition to round numbers, experts say that other factors may trigger an audit. These include claiming a home office deduction, reporting high income, failing to report all taxable income, and claiming excessive deductions.
If you claim a home office deduction, the IRS may want to verify that your home office is exclusively used for business purposes. Reporting high income can also attract the agency’s attention, as the IRS has a higher likelihood of auditing taxpayers with higher incomes.
Failing to report all taxable income, such as income from side jobs or investments, can also raise a red flag. The IRS receives copies of all tax forms, including W-2s and 1099s, so it’s important to ensure that all income is accurately reported on your tax return.
Finally, claiming excessive deductions can also increase the risk of an audit. The IRS may scrutinize expenses such as charitable contributions, business expenses, and unreimbursed employee expenses to ensure that they are legitimate and backed up by proper documentation.
while the IRS plans to hire more enforcement agents this tax season, there’s no need to worry as long as you keep proper documentation. Avoiding red flags such as reporting round numbers, claiming a home office deduction, reporting high income, failing to report all taxable income, and claiming excessive deductions can further reduce the risk of an audit.