The IRS has been making efforts to avoid increased audits on taxpayers making less than $400,000, however, experts warn that certain aspects of your tax return can still attract scrutiny regardless of your income level. The Treasury Inspector General for Tax Administration (TIGTA) recently reported that the IRS has made limited progress in developing the methodology for its audit coverage calculation to comply with the directive from the U.S. Department of the Treasury. This comes after Congress approved $80 billion in IRS funding in August 2022, with a significant portion allocated for enforcement activities.
One common red flag that can trigger an IRS audit is missing income. Employers and financial institutions report your earnings directly to the IRS using information returns like Forms W-2 or 1099. If there are inconsistencies or omissions in your filings, the IRS can easily identify them based on this information. Another potential red flag is claiming unreasonable deductions. For instance, if you earn $75,000 per year but claim $15,000 or $20,000 in charitable deductions, it could raise eyebrows at the IRS. It is essential to have detailed documentation to support all your deductions to avoid scrutiny during an audit.
While IRS enforcement efforts are primarily aimed at higher-income individuals, it is crucial for all taxpayers to ensure that their returns are accurate and compliant. Failing to file an accurate return can lead to audits, regardless of your income level. Particularly, cryptocurrency investors need to be aware of the IRS’s guidelines on reporting digital assets and be prepared for mandatory yearly reporting starting in 2026. Ensuring that you have all the necessary documentation and records to support your income and deductions can help you avoid unnecessary audits.
One of the key ways to prevent IRS audits is to maintain detailed records of all your financial transactions and activities. Keeping copies of your W-2s, 1099s, receipts, and other relevant documents can help you substantiate your income and deductions in case of an audit. It is crucial to be organized and meticulous in your record-keeping to avoid any discrepancies that could lead to further scrutiny by the IRS. By staying proactive and maintaining accurate records, you can minimize the risk of audits and ensure compliance with tax regulations.
While the IRS is focusing its enforcement efforts on higher earners and complex partnerships, all taxpayers should be vigilant about potential audit triggers. By being proactive, maintaining accurate records, and ensuring compliance with tax laws, you can reduce the likelihood of being audited. It is essential to address any red flags in your tax returns and seek professional guidance if needed to navigate the complexities of tax compliance. Remember that prevention is often the best defense against IRS audits, so stay informed and prepared to avoid any unnecessary scrutiny.
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