Tax season can be a stressful time for many, and the thought of an IRS audit can add to that anxiety. How can a person tell if the agency may target them?
Here are some circumstances that may lead to an IRS audit.
Random selection audits
In fiscal year 2022, the IRS conducted 708,309 tax audits. Many of these are random selection audits. The IRS may choose anyone, regardless of their income level or financial situation for an audit purely by chance. The agency uses this process to ensure tax compliance across the board.
Individuals whose reported income is significantly higher than what is typical for their profession or industry are more likely to face IRS scrutiny. The agency does this to prevent tax evasion among individuals with the means to potentially underreport their earnings.
Discrepancies and red flags
Errors or inconsistencies in tax returns can trigger an audit. These discrepancies may arise from mathematical errors, missing information or inconsistencies in reported income. Additionally, certain deductions or credits that appear unusually high in comparison to income may raise red flags.
Business owners and self-employed individuals
The IRS pays close attention to business owners and self-employed individuals due to the potential for underreporting income, overstating deductions or engaging in other activities that can lead to inaccurate tax filings.
Failing to report all sources of income is a common reason for audits. This includes income from freelance work, rental properties, investments and other sources beyond regular employment.
Individuals that the IRS has audited in the past may face increased scrutiny in subsequent years. The agency may choose to re-examine their returns to ensure the individual has rectified any previous issues.
It is important to remember that audits are not solely reserved for specific groups. Staying vigilant, double-checking tax returns and seeking professional guidance when needed can help individuals navigate the tax landscape with confidence and compliance.