How to Avoid an IRS Audit This Tax Season

As tax filing season rolls around, many Americans feel a sense of dread at the prospect of navigating the IRS filing process, let alone the possibility of being audited. While the odds of being audited are relatively low, with less than 0.4% of returns audited in 2022, it is still essential to take precautions to avoid attracting unwanted scrutiny. This article explores the most common triggers for IRS audits and provides valuable tips to help you file your taxes with confidence.

1. Incomplete Return One of the most common reasons for an IRS audit is an incomplete return. Jackson Hewitt's Jo Willetts emphasizes that this can be a simple missing form or a rushed filing that lacks necessary supporting documentation. Essentially, taxpayers who fail to include essential information or documentation required to validate their claims risk attracting extra attention from the IRS.

To avoid this, ensure that all relevant forms are complete and accurately included in your tax return. Keep all the necessary documentation on hand to verify your claims, whether they are related to income, deductions, or tax credits. Taking the time to double-check your return and being diligent about accuracy can help you avoid unnecessary audits and delays in the processing of your taxes.

2. Math Errors Simple math errors may not trigger a full-scale audit, but they will get your return some extra attention. Transposing numbers on your address or incorrect Social Security numbers are also unnecessary mistakes that can trigger extra scrutiny. Electronic filing helps mitigate these errors by pre-filling information and allowing you to upload forms directly. Tax preparation software or a professional preparer can also help ensure accuracy.
3. Accurate Reporting for Self-Employed Individuals Freelancers and self-employed individuals need to report their earnings and deductions accurately, as errors are more likely to trigger an audit. Receipts and other documentation are essential for claiming business expenses legitimately. The home office deduction, for example, requires that the space is used exclusively for business purposes. Transportation expenses should be adequately documented with mileage logs.

It's essential to be particularly careful with deductions, as the IRS looks for those outside the norm for your profession. Multiple years of business losses may also raise suspicion, so keep accurate records to justify them.

4. Charitable Donations While charitable deductions are worth claiming if you itemize your taxes, be careful not to overdo it. The IRS has systems like the Discriminant Information Function system that flag anomalies. Claiming deductions that are disproportionately large compared to your income or exceeding the permissible limits will likely attract scrutiny.
5. Undisclosed Income One of the biggest triggers for an IRS audit is undisclosed income. The IRS cross-references multiple databases with information from employers, banks, and other financial institutions. Any income earned that is not reported on your return will raise red flags and could lead to an audit.

Additionally, be careful with cash businesses, as unreported income earned through cash transactions can also be flagged. Make sure that all your income sources are declared accurately on your return to avoid any misunderstandings.

In conclusion, while audits primarily target high-income individuals, it's crucial to avoid common mistakes and be mindful of your tax filing behavior to reduce the likelihood of additional scrutiny. Remember, the IRS is primarily looking for reasons to validate your return, so take time, be diligent, and seek help if you need it to avoid common pitfalls. Keeping accurate records and being transparent is key to avoiding the stress and headaches of an IRS audit. A version of this article was originally published on CNET.com. It has been updated with new information.