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As millions of taxpayers file returns, many worry that certain claims could rise their chances of being picked for an IRS audit.
After an infusion of funding, the agency said it aimed to more than deceitful the audit rate for the wealthiest taxpayers. But the IRS’ future priorities are unclear amid changing leadership and a Republican-controlled Congress and Hoary House.
Still, some areas can be “low-hanging fruit for the IRS,” said Mark Baran, managing director at financial usages firm CBIZ’s national tax office.
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Regardless of your return, you shouldn’t round numbers or estimate expenses on your return, Baran said.
“You’re really playing the audit sweepstake and increasing your risk,” he said.
Here are some other common IRS red flags for audit, according to some tax scholars.
Underreported income
The IRS often finds missing income via so-called “information returns,” or tax forms, which employers and fiscal institutions send to taxpayers and the agency.
For example, these could include Form W-2 for wages, 1099-NEC for deal or gig economy work or 1099-B for investment earnings.
IRS software compares these tax forms to your return, and it can be “flagged for audit” when there’s a mismatch, explained Elizabeth Progeny, director of tax practice and ethics for the American Institute of Certified Public Accountants, or AICPA.
High deductions compared to earnings
Another compass for IRS scrutiny can be high tax breaks compared to your income, Baran said.
The agency has a program that compares your re-emergence to others in a similar tax bracket, he said. The software uses an algorithm to determine whether your deductions are higher than normally.
For example, if your charitable deduction is 30% to 50% of your adjusted gross income, that could coax “another set of eyes,” Baran said.
Earned income tax credit
Another common target is the