There are a lot of myths surrounding audits. If you do get audited, it doesn’t mean you did something inherently wrong. Sometimes all you need to do is explain your situation, or fix a math error. However, if you are worried about being audited, make sure to avoid these pitfalls.
1. Not reporting all income
If you choose not to report all of your earnings, it is highly likely that you will be audited. If you are a 1099 worker but you did not receive all of your 1099s, you are still responsible to report the income yourself. The company you contract with – Uber, Airbnb, ItWorks!, etc. – is required to send the IRS a record of anything you earned during the year. If you don’t report it on your end, it is only a matter of time before the IRS figures out you misreported your earnings.
2. Making a mathematical error or other mistakes
Errors happen to the best of us. The most seasoned taxpayer can make a mistake, and so can a tax preparer. Double check all numbers that you enter, so they match up on your return exactly. Use TaxSlayer to help avoid errors. You can ask a tax professional your questions, get email and phone support, and walk through all your deductions step by step.
3. Filing with the wrong status
Claiming the correct filing status is important. If you are single, do not claim head of household just to receive a higher standard deduction. If you claim the wrong status, the IRS will find out based on your past returns and how you filled out your W-4. If you’re not sure what your filing status is, find out here.
4. Deducting too many business expenses or business losses
If you have your own business, make sure that any expenses you claim are real and that you have receipts or other proof to back them up in case of an audit. It may seem easy to hide income as business expenses or losses when you’re self-employed, but the IRS will pick up on inconsistencies or percentages that don’t match up. The purchases must be normal and necessary for your type of work. For example, do not the painting supplies that you use for a hobby as part of your construction business expenses.
5. Using round numbers
If your income or deductions are not even numbers, do not round up. Rounding and perfectly even sums are a red flag for the IRS. They expect to see cents and decimals, not zeros. Report the numbers accurately, even if that makes the math more difficult. Double check your return or have a friend do it to avoid a mistake. And remember TaxSlayer will do the math for you if you are unsure of your skills.
6. Donating too much to charity
Donating to charity is a great way to reduce your taxable income while helping out a cause you are passionate about. Taxpayers are encouraged to donate. However, if you make an unusual or unrealistic donation, you are likely to be audited. Make sure that you are being honest, and that your donations are not a large percent of your income. Under the Tax Cuts and Jobs Act, credits and deductions can only equal 60% of your Adjusted Gross Income. If you do make a larger than normal donation, be sure to save your receipts and submit them with your return as proof.
7. Claiming the Earned Income Tax Credit or taking the Home Office Deduction
While taking credits and deductions are not immediate red flags for the IRS, the Earned Income Tax Credit and home office deduction are associated with a lot of fraud. If you are taking these credits, make sure you are eligible and that you are taking them correctly.
Read more about what happens when you get audited here.
This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.