Tax season can be a tumultuous time for many individuals, particularly as millions of Americans scramble to file their tax returns. Among the myriad concerns taxpayers face, the prospect of being selected for an IRS audit often looms large. With the recent influx of funding and a push for increased scrutiny on high-income earners, understanding the potential trigger points for an audit is essential for anyone looking to file their taxes accurately and confidently.
With enhanced financial resources, the IRS has set its sights on significantly increasing audit rates for the wealthiest Americans. This shift aims to ensure that individuals who may evade tax liabilities are held accountable. However, as leadership changes occur within the agency—and with a divided political landscape—it remains uncertain how these new priorities will manifest in practice. Still, tax experts suggest that certain taxpayer behaviors can make returns susceptible to IRS scrutiny.
One of the most crucial pieces of advice tax professionals offer is to avoid rounding numbers or estimating expenses on your tax return. Mark Baran, a managing director at CBIZ’s national tax office, emphasizes that these practices could increase one’s risk of being singled out for an audit. Filing your taxes accurately is critical, and even small discrepancies can lead to unwanted attention from the IRS.
Reports indicate that the IRS employs sophisticated software to analyze the data presented in taxpayer filings. This software cross-examines information reported by employers and financial institutions against your submitted return. Missing income—often uncovered through forms like W-2s or 1099s—can lead to audit flags. Discrepancies between reported income and your tax return can result in immediate scrutiny.
Another area where taxpayers must exercise caution is in claiming deductions, particularly charitable contributions. The IRS maintains a program that draws comparisons between individual tax returns within similar income brackets. If your deductions appear disproportionately high—such as charitable contributions accounting for a substantial percentage of your adjusted gross income—this can lead to additional investigation. In fact, if charitable deductions are perceived to be excessive, it may prompt an IRS agent to take a closer look.
The Earned Income Tax Credit (EITC) is also a frequent target for audit, particularly among lower-income workers. Notably, claimants of this refundable tax credit experience a disproportionate audit rate—an astonishing 5.5 times higher than average filers. The complexity surrounding eligibility based on income, residency, and family size often leads to unintentional errors in claiming benefits.
Despite the anxiety surrounding audits, it’s important to note that they remain relatively rare. According to recent IRS data, only about 0.44% of individual returns filed for the years 2013 through 2021 were audited. A significant majority of these audits are conducted via correspondence rather than in-person, which indicates that many issues can be resolved without direct interaction.
For taxpayers who may receive a notification from the IRS regarding an audit, Baran points out that having thorough documentation is paramount. Most correspondence audits focus on straightforward discrepancies that can often be clarified with supporting records. Over 77% of audits in fiscal year 2023 were conducted through correspondence, highlighting the expectation for taxpayers to furnish evidence rather than facing on-site examinations.
The knowledge that audits, while daunting, are typically manageable can help ease taxpayers’ anxiety. Proper organization and meticulous record-keeping are sacrosanct when it comes to minimizing audit risk. Baran notes that the IRS is likely to move past individuals who can substantiate their claims effectively. Documenting every aspect of your return will strengthen your position and reduce any fear surrounding possible audits.
Understanding the inner workings of the IRS and the audit process can empower taxpayers. By recognizing common pitfalls and equipping themselves with necessary documentation, individuals can confidently navigate tax season and mitigate chances of unwanted IRS scrutiny. Awareness and preparedness are the best strategies for ensuring a smooth filing experience.