Reasons You Could Be Audited by the IRS

Audit IRS Reasons Income

IRS Audit

Perpetually feared, IRS audits have taken on an almost mythical aura in our society. Despite the fact that fewer than 1 out of 100 middle class income households are audited per year, audits do in fact happen. But why? Below are a few reasons why the IRS could send you the dreaded audit notice. First, let’s understand what an audit is and is not.

An audit may consist of the following:

  1. Notice: the IRS may notify you via mail or telephone. They will NOT send the Men in Black to your door.
  1. An interview: you may do an in-person interview and review of your records. It may take place at your home, an IRS office, your accountant’s office, or your place of business. It will NOT take place in a secret CIA bunker.
  1. Request for documents: you will be asked to provide specific documents. These documents will clarify your financial situation.

What can trigger an IRS audit?

A. Not reporting all of your income: most employers file with the IRS, which means the IRS most likely knows when you’ve been paid for work or services. Be honest about your income, even if you’re worried about diminishing your tax return. In the end, it’s better than an audit.

B. Earning more than $200K: individuals who earn over this amount are more likely to be audited. This is not socioeconomic discrimination, it’s just statistical fact.

C. Claiming too many charitable donations: while donating to charity is great, reporting that you donated a significant chunk of your income to charity is likely to raise a red flag at the IRS office.

D. Using clean, round numbers: most salaries don’t end in a nice, neat, round number, and the IRS knows that. If you report such numbers, it suggests rounding–which is falsified information. Always be honest when you’re reporting income and you’re less likely to be audited. And if you are audited on an honest tax return, you’ve got nothing to hide.

Image credit: Boris Dzhingarov

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