dmphoto | E+ | Getty Images
tax season is underway, and there’s been Increased IRS Scrutiny as it begins deploying part of the nearly $80 billion In funding approved for the agency by Congress in August.
while the treasury secretary Janet Yellen Where is Target Including boosting customer service and improving technology, critics warn the new funding will stifle irs audit,
“People are scared of the death of the IRS,” said Carla Dennis, a registered agent and founder of Carla Dennis & Associates. “They don’t understand how the system works, and so they are very afraid of audits.”
The IRS accounts for 3.8 of every 1,000 returns, or 0.38%, during fiscal year 2022, down from 0.41% in 2021. recent report From Syracuse University’s Transactional Records Access Clearinghouse.
While IRS audits are rare, experts say certain steps make it more likely to trigger an examination.
4 red flags for an IRS audit
John Apisa, a CPA and partner at PKF O’Connor Davis LLP, points out that the statute of limitations for an IRS audit is typically three years, when you file, so the clock starts running. But there’s no time limit on when the agency can be pursuing tax fraud.
Typically, the agency uses software to compare each return to others with similar income, assigning each a numerical score, with higher numbers more likely to trigger an audit.
Some red flags that may trigger an audit include:
1. Excessive credits or deductions compared to income
For example, if you earned $100,000 and claimed $70,000 in charitable deductions, your return may be flagged.
2. Missing Income
Your return should reflect what has been told by employers and financial institutions, Apisa said, such as Form 1099-NEC for contract work or Form 1099-B for investment income. Wait to file until you have all your documents, and double-check to make sure what you entered matches what’s on the forms.
“You have to be careful even with simple things,” he said.
3. Refundable Credit
The IRS reviews refundable tax credits more carefully because filers can still receive the tax credit with a zero balance.
Whereas There has been an overall decline in auditThe drop is low for claimers earned income tax creditA tax break for low to moderate earners who have contributed Higher Audit Rates Among Black Americans,
4. round numbers
Deductions with rounded expenses can raise eyebrows, said Priti Shah, a certified financial planner and CPA at Enlight Financial in Hamilton, New Jersey.
For example, if a business owner lists $5,000 for advertising, $3,000 for legal expenses and $2,000 for support, “the IRS knows you’re just winging it,” she said.
Apisa said, “Round number one is a dead giveaway.”
How to protect yourself from a potential audit
While taxpayers may be fearful of audits, experts say the best protection is being conducted by saving receipts and records to show evidence if necessary. Shah said, “You are guilty until proven innocent.”
As Dennis said, and if you are missing the receipt, the abundant records may provide a narrative to support your position. “Document, document, document,” she said.