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Why does the IRS audit certain returns?

On Behalf of | May 7, 2021 | Blog |

Going through an IRS audit may prove both stressful and costly. No one can predict whether the tax agency will order an audit on a personal or business return. Still, past activity shows certain things may raise the chances of an examination. Washington taxpayers hoping to avoid problems with the Internal Revenue Service could follow some return preparation steps that might cut down on unexpected troubles.

Common mistakes that might lead to an audit

A return could contain entirely accurate information, but completing the return with pen and ink may make it hard to decipher, and thus the document might end up earmarked for a review. “Little things” such as these may tie up processing for some time. Additionally, minor problems could lead to the IRS asking additional questions about deductions.

Mathematical mistakes and failing to report income might lead to a return to be audited. The agency’s computer might pick up and correct minor mistakes, but several math errors may result in a closer look. Failing to report even a small amount of income could lead to an audit down the road when 1099s show up in the system. Rushing to complete a return might result in oversights and other mistakes, so investing the proper amount of time and care seems advisable.

Other issues that could raise audit flags

Self-employed persons and other entrepreneurs might fall under closer IRA scrutiny. Someone filing a schedule C and claiming too many deductions may invite scrutiny. Those claiming their business lost money year after year could also end up in an audit.

Persons who donate to a charity may find themselves required to show proof. “Excessive” charitable deductions often result in cursory investigations. Whether making charitable deductions or covering business expenses, keeping receipts appears to be a good move. Doing so may also maintain compliance with tax laws.