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Reasons the IRS will audit you

To put it succinctly, The IRS audits people to double-check their numbers and make sure their returns don’t show any inconsistencies. An audit is not a sinister move by the IRS to blackball you, but some people do try to purposefully cheat the system and that is when real problems arise.

The overarching reason behind tax audits, is for the IRS to minimize the “tax gap” – the difference between the money the IRS is owed and what it receives. There are random tax audits, but most often, they IRS will zone in on returns that show discrepancies and skeptical activity.

That being said, there are some reasons the IRS could target you for an audit.

  1. Poor math: This comes down to not making mistakes. Double and triple check your taxes to ensure the math is correct. If your taxes are complicated and you don’t trust your abilities or knowledge of the process, search for a tax filing vendor, like H&R Block, to assist you. An error may not automatically signal an audit but could easily lead to you getting less of a refund an owing more than you should.
  2. Failing to report some income: You have your regular job, but you also write freelance articles about the best burger joints in your city or have a side hustle helping with social media strategy, you must report all that income. Freelance and standard jobs have two different forms. Standard jobs offer a W-2, while freelance jobs offer a 1099-Form. Unless you’re paid in cash and haven’t filled out a 1099-Form, report or face an audit.
  3. Don’t report false donations (or false anything else): Be fully truthful and an audit is unlikely (remember possible random selection.)
  4. Reporting too many losses on a Schedule C: This reason is for the self-employed and comes down to one point; don’t write off too many personal expenses. Those add up to losses on your return. If you report too many losses, the IRS will wonder how your company is still in business and will signal an audit.
  5. Deducting to many work expenses: Only deduct the expenses that are ordinary and necessary to what you do, like a carpenter buying a table saw or a photographer buying different lenses.
  6. Claiming your home office as a deduction: Only if that “home office” is your primary space to conduct a large portion of your business, can you deduct that space. If you answer emails a couple times a week from your “home office,” it will likely be viewed as fraud and scheduled for an audit investigation.
  7. Neat and round numbers: Most expenses don’t look clean, they often come with extras, like a $492.34 lens or a $25.97 canvas. Always round to the nearest dollar.

As mentioned, audits are unlikely for most Americans. If you are in a higher tax bracket, or report no income, your likelihood of an audit increases.

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Law Offices of Robert T. Leonard, APC

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