Tax Alert: IRS Audits Are Increasing – Top Tips to Avoid an Audit and Protect Your Tax Filing

Tax season is upon us, and while most Americans are hoping for a tax refund, there’s always the nagging fear that you might get selected for an audit by the IRS. While it's true that the majority of taxpayers don’t face an audit, there are certain red flags that can increase your chances of hearing from Uncle Sam. In this article, we'll outline the key signs that could trigger an IRS audit, and provide some expert advice on how to avoid the stress and potential penalties that come with an audit.

Who is Most Likely to Be Audited by the IRS?

The IRS has a set of criteria it uses to select taxpayers for an audit, and it’s not always a sign that something is wrong with your tax return. In fact, some audits are randomly selected based on a statistical formula. According to the IRS, they may also target taxpayers who have discrepancies when compared to others in similar situations.

Here are the main reasons the IRS might select your return for an audit:

1. Statistical Selection: The IRS uses a formula based on the National Research Program to compare your tax return with those of your peers. If your return is out of line with others in similar financial situations, it could raise a red flag.

2. Related Examinations: If your return involves a business partner or another taxpayer who is being audited, your return may be subject to scrutiny as well. This often happens when there are shared financial interests, like a business partnership or joint investments.

   
   

Common Red Flags That Could Trigger an Audit

Certain actions can increase the likelihood of being flagged by the IRS. Avoiding these common pitfalls can help ensure that your tax return is processed smoothly. Here are a few key things to watch out for:

1. Claiming Excessive Deductions: If you’re claiming unusually large deductions compared to others in your income bracket, the IRS may take a closer look. This is especially common among self-employed individuals who might exaggerate business expenses like home office deductions or vehicle usage. Remember, the IRS expects thorough documentation to back up any deductions.

2. High Income Earners: While the overall audit rate for individual returns is low, it increases significantly for those earning more. In fact, taxpayers reporting income of $10 million or more had an audit rate of 8.7% between 2013 and 2021. However, the IRS is now focusing more on high earners, particularly those with income above $400,000, using advanced technology and artificial intelligence to uncover complex tax avoidance schemes.

3. Claiming Refundable Credits Like the EITC: Refundable tax credits, such as the Earned Income Tax Credit (EITC), can trigger audits, particularly for low- to moderate-income earners. While the EITC is designed to help, it has a high audit rate. In 2019, 82% of audits on individual taxpayers earning under $50,000 involved the EITC. A large percentage of these audits were correspondence audits, and many of those audited failed to respond, resulting in the disallowance of the credit.

   
   

How to Protect Yourself and Avoid an Audit

Although audits can be a stressful process, there are steps you can take to minimize your risk and ensure that your tax return is in tip-top shape:

1. Be Honest and Accurate: Ensure that all of your income is reported accurately and that your deductions are legitimate and well-documented. Avoid overestimating business expenses or claiming deductions that aren’t justifiable.

2. Consult with a Professional: Navigating tax laws and keeping track of deductions can be tricky. This is where Silvers Financial Services can help. Our team of experienced tax professionals offers personalized tax planning and filing services to ensure that your return is accurate and optimized to minimize your risk of an audit. We provide expert advice to help you claim legitimate deductions while staying compliant with IRS rules.

3. Keep Detailed Records: Whether it’s receipts, invoices, or financial statements, maintain thorough records of your income and expenses. In the event of an audit, having solid documentation will protect you from penalties or loss of deductions.

4. Seek Expert Guidance: If you’re unsure about your tax filing, it’s best to consult with a tax professional before submitting your return. At Silvers Financial Services, we specialize in tax preparation and audit defense, providing peace of mind so that you can avoid the potential pitfalls of IRS scrutiny.

   
   

In Conclusion

While an audit is unlikely for most taxpayers, it’s important to be aware of the common red flags that can increase your risk. By preparing your tax return carefully, avoiding excessive deductions, and seeking professional advice, you can significantly reduce the chances of facing an IRS audit. And if you do find yourself in need of assistance, Silvers Financial Services is here to help. Our team can guide you through the process, from filing your taxes to defending against an audit, ensuring you have the best chance of a smooth and successful tax experience.

For more information or to schedule a consultation, contact Silvers Financial Services today. Don’t leave your financial future to chance—let us help you navigate the complexities of the tax system with confidence.