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Avoiding IRS Audits

Audio version available here:

Length: approx. 1 min. 30 sec.

Since 2023, the IRS has increased its enforcement on “high-income individuals, large corporations, and complex partnerships”, resulting in an extra $520 million collected. However, that doesn’t mean “everyday filers” are exempt from potential audits. Here are some of the red flags the IRS is likely to catch.

The easiest warning sign for the IRS is missing income. The IRS is able to catch income left out of an individual’s tax return due to information returns sent in by employers and financial institutions. Inconsistencies between these information and tax returns is the most common reason that gets taxpayers into trouble.

Another red flag for the IRS is “unreasonable tax breaks”. If you file for deductions that seem excessive for your income level, then they could raise some questions with the IRS. Be sure to have “detailed substantiation” for any kind of tax break, otherwise your deduction could be removed.

If your expenses turn out to be round numbers, that could be a warning flag for the IRS. Experts recommend taxpayers use their “actual expenses [that can be substantiated] rather than estimates” when claiming expenses on their tax return.

The final red flag for the IRS is the Earned Income Tax Credit”. While it is a legitimate credit that can benefit your tax refund, those who have claimed this tax break have a “5.5 times higher audit rate” than other filers due to “improper payments”.

Overall, audit rates for people of all incomes has decreased in the last decade. Despite this, it is important to stay away from the “audit lottery”. If you feel that you need the right guidance to file your taxes correctly, don’t hesitate to reach out to the XQ CPA team for assistance. We would love to help you.

Phone: 832-295-3353

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