IRS audits are scarier if you’ve never had one. In theory, they’re terrifying, but in reality they don’t have to be more than a minor inconvenience.
If your returns are accurate and you can back up your deductions with documentation, the process can be smooth, swift, and mostly painless. While it’s true that some individuals and businesses chosen for IRS audits are selected randomly, it’s also true that many aren’t.
To avoid unwanted scrutiny, here’s a quick guide to the common reasons for IRS audits:
- Unreported Income: it’s tempting but not worth trying to hide income from your side job. Remember that 1099 income is already on the books. You may get away with it once, but if you’re avoiding paying taxes on contract work, it’s only a matter of time before the tax man comes knocking.
- Avoid Anomalies: oddities are a red flag to IRS processors, and because they have the data to compare to your claims, it’s important that you’re not making yourself stand out. This applies to unusually high incomes and charitable donations.
- High Deductions: high deductions are one of the easiest flags to spot. If you earn $100,000 but claim $20,000 in deductions, make sure you can account for every dollar. Moderate deductions can also appear suspicious. Be weary of claiming home office space that you can’t prove is used solely for business.
- Round Accurately: be accurate in general, but take special care to be accurate when you’re rounding your business deductions. A new computer doesn’t cost exactly $1,000. A flight and car rental isn’t exactly $500. You don’t have to account for every cent, but expect a second glance from the IRS if your deductions all end in zeros.
- Timing Matters: some claim the IRS is less likely to audit you if you file just before the deadline. The thinking goes like this: if you file too early, IRS staff aren’t very busy, as they’re awaiting the April 15th deluge of filers. And if you file late, you’re putting a target on your back. If you file just before the deadline, you’re on time but not so early that you might garner extra scrutiny. It’s mostly anecdotal, but being on time at least doesn’t run the risk in and of itself of looking suspicious.
Our team of tax professionals has decades of experience tackling almost any IRS or state tax issue you might face. If you’re unsure or have questions, don’t hesitate to call (800-790-1507), email, or visit us online.