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4 scenarios that could trigger an IRS audit

On Behalf of | Dec 22, 2021 | Tax Audits

Whether you are an individual taxpayer or a business owner, facing an IRS tax audit can be a frightening experience. While many people consider it a punishment, an audit is generally triggered by simple errors or mistakes made during the tax return process.

Even though every scenario is unique, there are numerous common factors that can ultimately lead to a tax audit, including:

  • Failing to accurately report income: Many people do not realize that when an employer sends a W-2 with income information, they send the same data to the IRS. With this data in hand, the IRS takes the time to compare what you’ve reported on your tax return to the information provided directly to them from the employer. A significant mismatch will likely trigger an audit.
  • Claiming unrealistic deductions: Using your reported income as a guide, the IRS will immediately flag deductions that seem out of proportion to your income. Charitable donations, for example, are a good way to increase the overall amount of your deductions but claiming that you donated the equivalent of 30% or 40% of your income will likely trigger an audit.
  • Miscalculations or typos in your return: Even though tax preparation software has many checks and balances included, they do not always prevent typos and mathematical errors. Miscalculations, outside of simple rounding errors, can greatly impact the accuracy of the tax paperwork, raising red flags in the IRS.
  • Failing to understand deductions: While many deductions might seem to apply on the surface, there are often complex nuances associated with each one. It is not uncommon for individuals to become confused claiming business expenses or a home office deduction without a detailed understanding of the rules. Incorrectly claiming a deduction will often trigger an IRS audit.

For many people, careful tax preparation is the central key to avoiding an audit. While most tax preparation software includes tips and keys, triggering an IRS tax audit is a distinct possibility. Do not hesitate to seek guidance in these matters to avoid unnecessary complications.