Getting audited by the IRS can be stressful, but knowing what may attract attention can help you avoid common mistakes on your tax return. The IRS uses computer systems and human reviews to compare tax returns and look for unusual information. Some issues are easy to avoid, such as forgetting to report income, while others, such as having a high income, may simply mean your return receives more attention.
Not Reporting All of Your Income
One of the most common problems is leaving income off your tax return. The IRS usually receives copies of tax forms such as W-2s and 1099s, so it can compare those forms with the income you report.
If you have several jobs, investments, bank accounts, or other sources of income, it can be easier to forget one. Make sure all of your income is included before filing your return.
Problems With Foreign Accounts
Money or assets held outside the United States can come with additional reporting requirements.
Certain taxpayers must report foreign financial assets when they reach specific dollar amounts. Failing to report these accounts or providing incorrect information can create problems with the IRS.
Claiming Too Many Business Expenses
Business owners can deduct legitimate business expenses, but large or unusual deductions can attract more attention.
For example, mixing personal and business expenses or claiming unusually high deductions for meals, travel, or vehicles can raise questions. Keeping receipts and clear records can help show that your expenses were actually related to your business.
Having a High Income
People with higher incomes generally face a higher chance of an IRS audit. According to IRS data cited by TurboTax, only 0.36% of individual returns were audited for tax years 2015 through 2023, compared with 7.9% of returns reporting $10 million or more in total income.
Having a high income does not mean you did anything wrong. Higher-income tax returns are often more complicated and may include more deductions, investments, businesses, and other financial information.
Keep Good Tax Records
The best way to protect yourself is to file an accurate return and keep good records. Report all of your income, separate personal and business expenses, and keep receipts and documents that support your deductions.
If you’re unsure about your taxes or have questions about an IRS notice, consider speaking with a qualified tax professional who can review your specific situation.