For most taxpayers, the idea of getting audited by the IRS is a troubling thought. While a tax audit is simply a review to ensure that individuals are reporting correctly and adhering to tax laws, it’s an ordeal most people wish to avoid.
The odds of the IRS selecting you for a review are relatively low. In 2018, the IRS only audited .59% of individual tax returns. Though the IRS chooses some audits randomly, most are due to errors or what appears to be suspicious activity.
There are a few common red flags that increase the risk of a second look at your taxes. Here are some of the biggest reasons the IRS may audit you come tax season.
1. Math Errors
Sometimes the biggest red flags to the IRS were simply math mistakes or an accidental typo on your tax forms. If you are preparing your own taxes, be sure to double-check your numbers to ensure everything is correct. Even unintentional mistakes can result in fines. If you’re not confident doing your taxes independently, working with a tax software or tax professional can help you avoid costly errors.
2. Failing to report income
Another big thing that can attract IRS attention is failing to document some of your income. For example, if you work full-time at a company but freelance on the side, it’s tempting not to report your freelance income. This isn’t advisable, as it will only be a matter of time before the IRS catches on.
3. The home office deduction
The IRS often looks at home office deductions very closely, as many people try to deduct expenses that don’t qualify. Claiming a home office deduction is usually only appropriate if you use a designated area of your home strictly for business purposes. If you don’t have a space for work and work only, you likely do not qualify for this deduction.
4. Using round numbers
In most cases, it’s incredibly rare to have clean, rounded numbers on your tax forms. Be sure to avoid making estimations when making your tax calculations. For example, if you are a freelancer who had a $395.25 business expense, it would be appropriate to round that to $395 – not $400. Rounding up too much can raise concerns to the IRS.