Posted on 02/15/2024 7:47:09 AM PST by Red Badger
As Americans file returns this season, some worry about IRS audits amid agency efforts to ramp up service, technology and enforcement.
Recent IRS enforcement has targeted high-income individuals, large corporations and complex partnerships. But everyday filers could still face an audit — and certain issues are more prone to IRS scrutiny, experts say.
You don’t want to face the “audit lottery,” warned Ryan Losi, a certified public accountant and executive vice president of CPA firm Piascik.
Audit rates of individual income tax returns decreased for all income levels from tax years 2010 to 2019, largely due to lower IRS funding, according to a report from the Government Accountability Office.
The IRS audited 3.8 of every 1,000 returns, or 0.38%, during fiscal year 2022, down from 0.41% in 2021, according to a 2023 report from Syracuse University’s Transactional Records Access Clearinghouse.
But many Americans could have a “false sense of comfort” about their personal audit risk, according to Mark Steber, chief tax information officer at Jackson Hewitt.
Here are some of the biggest IRS audit red flags.
1. Missing income
For many taxpayers, missing income is easy for the IRS to catch because of so-called information returns, which are tax forms that employers and financial institutions send to the agency.
For example, you may have freelance income reported via Form 1099-NEC or investment earnings on Form 1099-B.
Steber said “mismatched data” is the No. 1 thing that gets taxpayers into trouble. “If you leave stuff off [your return], that could get a question,” he said.
2. Unreasonable tax breaks
Another red flag could be excessive deductions compared to what’s considered normal for your income level, according to Losi.
For example, if your adjusted gross income is around $100,000, but you’re claiming itemized deductions — such as the charitable deduction — similar to million-dollar filers, that could raise eyebrows, he said.
“You need detailed substantiation,” because if you can’t prove you qualify for a tax break during an audit, you could lose the deduction, Losi said.
3. Round numbers
Accuracy is critical when filing your return and experts recommend using actual expenses rather than estimates for tax breaks.
When claiming four- or five-digit deductions, it’s “very unlikely” your expenses will be round numbers, Losi said. “You’re opening yourself up to be part of the audit lotto when you do that,” he said.
4. Earned income tax credit
The earned income tax credit, a tax break for low- to moderate-income workers, has historically been scrutinized “because the refundable part attracts certain bad actors,” said Steber.
It’s a complex credit with a high “improper payments rate,” National Taxpayer Advocate Erin Collins wrote in her 2023 Purple Book of legislative recommendations.
While higher earners are more likely to face an audit, EITC claimants have a 5.5 times higher audit rate than the rest of U.S. filers, partly because of improper payments, according to the Bipartisan Policy Center.
However, starting in fiscal 2024, the IRS said it would “substantially” reduce the number of correspondence audits, or audits by mail, for filers claiming the earned income tax credit.
I’ve just been told that ‘lawyers’ are not allowed on juries.
Get a diploma from the Law School of Antigua............................
Love that movie!....................
IRS agent: You reported no income for 2022, yet you claimed a $15,000 refund. Please explain that.
= = =
It was for charitable donations of used underware.
Note to Joe:
Your diapers are now gold.
There’s a lot of stuff I don’t do, due to the tax reporting burden.
My charity is cash. No body (here on Earth) needs to know. Don’t try to claim ‘subdidies’, too much paper and time required.
Do work for free. Maybe I kind of swap efforts with folks....
Take standard deduction. It is pretty hard to beat that, for me.
Forge a law degree diploma from Mars.
Lol.
Damn, that's my password, same reason!
You can’t lie to the court, but I haven’t had any jury pool requests since I told them I had kidney stones years ago..
“You can’t lie to the court”
Back in the 80s I lost 2 friends because I lived up to that.....one suing the other for a car crash that left the passenger severely injured.
We were all together that day at the beach and then later at a wing bar drinking before the accident.
I had to share intimate details about that day under oath and the driver never forgave me.
I was NOT going to lie under oath just to help him out.
Didn’t matter anyway, anything I stated that was helpful to the defense was stricken from the record anyway.
I tried to explain that fact to him but he didn’t want to hear it.
In the end though, I sleep well at night knowing I told the WHOLE truth.
This is my 4th summons. I sat on a jury in 2015 for a burglary. It’s a pain.”
having sat on a previous jury gets you out of serving again for some number of years ... give them a call ...
Should have mentioned, it was a deposition setting.
Thanks. I’ll do that. 👍
Just found out, in my state you can be called every 12 months 😏
I pay a CPA for our taxes. Gives me peace of mind knowing that any deductions and our income are correct. With thousands upon thousands of pages the tax code is unmanageable for someone not well versed in it. How the irs can expect a common person to understand the verbiage is beyond me.
That said I expect if we were audited we would have even more eligible deductions.
When it comes to anything with state or federal government it’s best to practice conservative deductions just in case.
Tax code is a national disgrace, abysmally unworthy of America.
5. ‘Hard R’ on registered voter lists.
“Just found out, in my state you can be called every 12 months”
well, that sucks ... so you’ll have to go in, but if called there’s a million “wrong” answers on voir dire ...
I got one more chance to get out of it.
Potential jurors are instructed to call the court house or check on line the Friday before the report date to make sure their juror “group” is actually needed.
That’s what happened last time.
🤞
The year I retired I wound up paying 4thousand dollars in income taxes. My regular salary, I had lots of overtime from clubs I took part in school, but the real killer was I had over 220 sick days accumulated. I could only collect on 110 of those day. I also had income from beginning to collect on Social Security. What a mess.
I got put on a jury twice. The second time the juror next to me asked what my occupation was. Told him I was a teachet. He kind of laughed and said neither of us would be on the final jury selection. He was a cop and the case was assault of a child.
5. Egregious home office deduction.
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