Although the IRS is unlikely to audit your return, there are many reasons why they may.
Round figures, missing income, large deductions or credits, unreported income, and refundable tax credits are all red flags that may prompt an audit. Tax experts advise that keeping detailed records and relevant receipts is the best protection.
As the IRS continues to use its almost $80 billion in resources, fears of audits have increased this tax season.
There is no need to panic, and experts say, as long as you maintain your records. Since the IRS wants to add more people, including enforcement officers, the public has been ill at ease.
There are warning signs that are more likely to prompt an IRS audit, according to professionals. Certified financial advisor at Enlight Financial in Hamilton, New Jersey, Preeti Shah, stated, “Round numbers are a dead giveaway.”
Experts advise using precise figures rather than rough estimations when filing your tax return to maximize any deductions you may be eligible for. Estimates are implied by using round figures.
For instance, “the IRS knows you’re simply winging it” as a single proprietor if your budget includes $2,000 for assistance, $3,000 for legal fees, and $5,000 for advertising.
According to John Apisa, CPA, partner at PKF O’Connor Davies LLP, unreported income is a primary concern that may prompt an IRS investigation.
If the IRS finds a discrepancy between your reported income and that reported by businesses and banks, it may automatically notify you. He gave examples of Form 1099-NEC for contract labor and Form 1099-B for investment income as areas where people can be tempted to cut corners.
It’s best to wait to file until you have all the necessary paperwork and can double-check your entries against the originals. Apisa emphasized the need to exercise caution even while dealing with seemingly innocuous matters.
The Internal Revenue Service recommends keeping records for at least six years but up to seven years in some instances.
