Why You Could Get Audited by the IRS: Tax season is upon us, and the IRS has already warned that taxpayers may need to wait more than three weeks to receive refunds. It comes as a result of the agency’s unprecedented backlog of communications and tax filings which was largely caused by the COVID-19 pandemic.
Dealing with the IRS this year won’t be a breeze for anybody, which makes it more important than ever to ensure your taxes are filed properly and your chances of being audited are reduced.
Avoid an audit this year by considering these five most common reasons people get audited by the IRS.
Missing Paperwork
Anything can trigger an audit. It could be something as simple as some missed paperwork.
If you rush to file your taxes last minute, the chances are you misfile something or miss a crucial piece of documentation.
At a time when extended tax credits and stimulus checks and loans make taxes more complex, it’s more important than ever to have your tax paperwork in order and submitted accurately.
Abnormally High Expenses
If you’re self-employed, you will file business expenses as part of your taxes. These expenses are related to the operation of your business and reduce your tax bill.
If your expenses seem abnormally high for a business or self-employed operation of your size or industry, it could raise questions at the IRS and trigger an audit.
Large Charitable Deductions
Charitable donations can be deducted from profits just like a regular business expense, but if the IRS sees large donations that don’t appear consistent with your income, it will likely trigger an audit.
The entire process is automated, with the Discriminant Information Function system that scans all tax files and identifies anomalies.
Simple Errors
Making errors in your tax filing doesn’t always trigger an audit, but they could. The best-case scenario is that an error is identified and fixed, or you are notified of the error and given an opportunity to fix it.
However, errors may also trigger an audit over concerns that other errors may also have been filed. For this reason, it’s wise to file your taxes online to minimize errors or hire a professional account to handle it for you.
Undeclared Income
W-2s must be filed by employers with the IRS that list all employees’ earnings. For freelancers, it’s 1099 form.
When these forms are filed, the IRS computers automatically check to make sure that the income reported matches the forms submitted by the employer. If they do not match, then it could trigger an audit.
Be Prepared for an Audit
You never know when an audit might happen, so always be sure to keep tax records for at least the last three years. In most cases, the IRS will include two to three years’ worth of tax returns during an audit.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and report on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.
