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.
Several ways:
Choose as applicable;
1. I am the only ‘bread winner’ in the family.
2. My job doesn’t pay for jury duty.
3. My invalid spouse needs constant care.
4. I am a single mother of a preschooler.
5. I have no transportation / driver’s license.
6. I am a convicted felon.
7. This guy is guilty as hell!.................
8. I am a big RUSH Limbaugh and Trump fan.
#8
I wear my “you’ll have to pry my gun from my cold dead hands” T shirt to court. 😁
I retired six years ago. I screwed up last year and paid $238 in federal taxes. That’s the first since I retired. It’s almost worth getting old and dying.
Not here you won’t.
Here they tell you in the letter that you must wear a suit or ‘business attire’....................
“If you have 401Ks or IRAs, you have to figure out how to minimize your required distributions to keep you in the lower tax bracket.”
indeed ... i make “whatif” copies of the current year’s H&R Block returns and then juggle possible withdrawal amounts for the next year to stay inside the 12% bracket ...
just came up with a new wrinkle too: withdraw at the end of the year instead of the beginning so any dividend/interest remains tax deferred ... that can add up to good tax savings when you consider that short-term Fed bond funds like schwab’s SNOXX yields 5% per annum ...
next year, though, i face minimum withdrawal amounts due to age ...
I write the check out to Donald Duck. It’s always cashed.
Lesson: Never retire.
Well, they are a Mickey Mouse outfit.............
I retired January of 2023. This is going to be the most complex tax return I have ever seen. I hope I don’t forget something.
I retired from active duty military in Sept of 2009. I forgot to include my retirement checks from Sep-Dec for that tax year filing. The IRS was not happy and screwed with me for 4 years after.
btw, the other advantage to withdrawing at the end of the year is to withhold for next year’s tax to avoid the small withholding penalty, yet lose only 4 months of deferred interest on the withheld amount during the first quarter of the next year ...
“Because I got one of those infernal things yesterday.”
if it’s a criminal case, it’s a VERY instructive experience, and you always have the chance to vote for jury nullification if the fascists are trying railroad some poor slob ...
I wrote “Hunter Biden” on my laptop granting it complete protection from FBI searches and warrants.
I was doing well up until 2023. New ‘threshold for filing’ is $1,954.00 lower than what my SS was this year with the two tiny ‘bumps’ we’ve gotten in the past few years in SS which is my only income.
Grrrr! It was fun while it lasted!
Well, I can write off my charitable donations at least...which will trigger an audit I’m sure. *Rolleyes*
Been nice knowing you all! ;)
“..Plan B—during voir dire just say you want to chop the hands off of shoplifters or other thieves. That should get you disqualified....”
LOL....
Plan C: tell em you’re a supporter of the death penalty, a member of the KKIK or a member of the John Birch Society. Seems to work most of the time....LOL.
“Here they tell you in the letter that you must wear a suit or ‘business attire’”
well, there’s always the “My Cousin Vinny” attire that meets the letter of the requirement, if not the spirit ...
In MA, it’s one day/one trial.
Must of the common excuses will get you laughed at.
I’ve been called 4 times now.
The summons is very clear as to what atire is prohibited.
The last time, every rule about clothing vas violated by someone.
Here, minimum is button up shirt, tie, dress pants.............
This is my 4th summons.
I sat on a jury in 2015 for a burglary.
It’s a pain.
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